(a) An admitted insurer’s officers, directors, trustees, and any persons who have authority in the management of the insurer’s funds, shall not, unless otherwise provided in this code:
(1) Receive any money or valuable thing for negotiating, procuring, recommending, or aiding in, any purchase by or sale to such insurer of any property, or any loan from such insurer.
(2) Be pecuniarily interested as principal, coprincipal, agent, attorney, or beneficiary, in any such purchase, sale, or loan.
(3) Directly or indirectly purchase, or be interested in the purchase of, any of the assets of the insurer.
(b) This section shall not apply to:
(1) The purchase or exchange of stock of an admitted insurer by an admitted insurer or between admitted insurers nor to any merger, consolidation, or corporate reorganization of such insurers, and shall not apply as to such purchase, merger, exchange, consolidation, or reorganization, nor to the officers, directors, trustees, or any persons having authority in the management of such insurers funds in respect to any such transaction, and no such transaction shall be either void or voidable, if:
(i) The transaction is just and reasonable as to the insurers involved at the time it is authorized or approved and if no such officer, director, trustee, or other person having authority in the management of such insurers funds receives any money or other valuable thing, other than his or her usual compensation for his or her regular duties, for negotiating, procuring, recommending, or aiding in such transaction, and, either of the following apply:
(ii) Any interest in such transaction on the part of any officers, directors, trustees, or persons who have authority in the management of any such insurer’s funds is disclosed or known to its board of directors or committee, authorizing, approving, or ratifying the transaction, and noted in the minutes thereof, and the board or committee authorizes, approves, or ratifies the transaction in good faith by a vote sufficient for the purpose without counting the vote or votes of any interested officers, directors, trustees, or persons who have authority in the management of the funds of any such insurer.
(iii) The fact of such interest is disclosed or known to the shareholders in the case of a stock insurance company, or in the case of a mutual insurer to the policyholders, and they approve or ratify the transaction in good faith by a vote or written consent of a majority of the shares or policyholders, as the case may be, entitled to vote, unless the consent or vote of more than a majority is otherwise required, in which event the vote or written consent shall be that so otherwise required.
Any such officer, director, trustee, or other person who has such interest may be counted in determining the presence of a quorum at any meeting that authorizes, approves, or ratifies such transaction.
(2) Any transaction relating to an insurer if the transaction meets the other requirements of subdivision (b) and such officers, directors, and trustees of the insurer do not in the aggregate own more than 5 percent of the stock of any corporation with which the insurer is entering into a transaction.
(3) Any transaction if prior to its consummation the insurer has applied for and obtained from the commissioner a certificate of exemption in respect to the specific transaction therein described and such transaction is consummated in conformity with such certificate and the representations and disclosures made in, or in connection with, the application therefor.
(4) To obtain the certificate of exemption the insurer shall file with the commissioner a written application, accompanied by a filing fee of seven hundred five dollars ($705). The application shall be verified as provided in Section 834, be in a form as the commissioner shall require and shall contain all of the following:
(A) A specific description of the particular transaction for which the certificate is sought.
(B) Copies of all contracts and other legal documents involved or to be involved in the transaction.
(C) A description of all assets involved in the transaction.
(D) The names, titles, capacities, and business relationships of all persons in any way involved in the transaction who are connected with the insurer or any of its affiliates, officers, directors, managers, or controlling persons or entities in any of the capacities described in this section.
(E) A description of any and all considerations on either or any side of the transaction.
(F) Evidence that its governing board has specifically authorized the filing of the application.
(G) Such other information, opinions, or matters as the commissioner may require.
The commissioner may issue such certificate of exemption if he or she finds, with or without a hearing, that the transaction is fair, just, and equitable, and not hazardous to policyholders, stockholders, or creditors. The commissioner may impose such conditions, including, but not limited to, disclosure of the circumstances and terms of the transaction either before or after its consummation either publicly or to such persons and entities as he or she may designate and the approval of the transaction by such persons or entities as he or she may designate. He or she may also require that a report of the transaction be filed with him or her subsequent to its consummation in such form and containing such information as he or she may prescribe.
The certificate of exemption issued pursuant to paragraph (3) of subdivision (b) shall only exempt the transaction from the prohibitions of this section and shall not affect the rights or remedies of any persons under any other law.
The amendment made to this section at the 1955 General Session shall not apply to contracts, sales, transfers, or other transactions entered into prior to the effective date hereof.
The commissioner shall not issue a certificate of exemption under paragraph (3) of subdivision (b) in respect to any transaction consummated prior to the effective date of the amendment made to this section at the 1967 Regular Session.
(c) Whenever it appears to the commissioner that any insurer, or any director, officer, employee, or agent thereof, has committed or is about to commit a violation of this section, the commissioner may apply to the superior court for the county in which the principal office of the insurer is located, or if such insurer has no such office in this state, then to the Superior Court for the County of Los Angeles, or for the City and County of San Francisco, for an order enjoining such insurer, or such director, officer, employee, or agent thereof, from violating or continuing to violate this section, and for such other equitable relief as the nature of the case and the interests of the insurer’s policyholders, creditors, and shareholders or the public may require.
(Amended by Stats. 2017, Ch. 534, Sec. 21. (AB 1699) Effective January 1, 2018.)
Last modified: October 25, 2018