Chapter 1
Department of Commerce and Insurance

Part 1
General Provisions

56-1-101. Short title.

This title shall be known and may be cited as the “Tennessee Insurance Law.”

Acts 1895, ch. 160, § 1; Shan., § 3274; Code 1932, § 6084; T.C.A. (orig. ed.), § 56-101.

Cross-References. Revocation, denial or suspension of professional, driver and other licenses, to enforce child support obligations, title 36, ch. 5, part 7.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, §§ 2, 4.

Law Reviews.

Administrative Law — 1964 Tennessee Survey (E. Blythe Stason), 18 Vand. L. Rev. 1047 (1965).

NOTES TO DECISIONS

1. Legislative Intent.

The intention of the general assembly has been to protect direct policy holders and not reinsurance promisees. Neff v. Cherokee Ins. Co., 704 S.W.2d 1, 1986 Tenn. LEXIS 648 (Tenn. 1986).

56-1-102. Definitions for this chapter, chapters 2-4, 7, 10 and 11 of this title.

As used in this chapter and chapters 2-4, 7, 10 and 11 of this title, unless the context otherwise requires:

  1. “Commissioner” means the commissioner of commerce and insurance;
  2. “Company” or “insurance company” includes all corporations, associations, partnerships, or individuals engaged as principals in the business of insurance;
  3. “Department” means the department of commerce and insurance;
  4. “Domestic” designates those companies incorporated in this state;
  5. “Foreign,” when used without limitation, includes all companies formed by authority of any other state or government;
  6. “Net assets” means the funds of an insurance company available for the payment of its obligations in this state, including uncollected and deferred premiums not more than three (3) months due on policies actually in force, after deducting from the funds all unpaid losses and claims, and claims for losses, and all other debts and liabilities, inclusive of policy liability and exclusive of capital; and
  7. “Unearned premiums,” “reinsurance reserve,” and “net value of policies” or “premium reserve,” severally, mean the liability of an insurance company upon its insurance contracts, other than accrued claims computed by rules of valuation established by §§ 56-1-402 — 56-1-405 [see the Compiler's Notes].

Acts 1895, ch. 160, § 1; Shan., § 3274; Code 1932, § 6084; modified; T.C.A. (orig. ed.), § 56-102.

Compiler's Notes. Sections 56-1-402 and 56-1-403, referred to in this section, were repealed by Acts 2013, ch. 260, § 1, effective July 1, 2013.

NOTES TO DECISIONS

1. Legislative Purpose.

The controlling object of this statute is the protection of policyholders and revenue to the state. North British & Mercantile Co. v. Craig, 106 Tenn. 621, 62 S.W. 155, 1900 Tenn. LEXIS 197 (1901).

There is indicated a policy of the general assembly against parol insurance. Continental Ins. Co. v. Schulman, 140 Tenn. 481, 205 S.W. 315, 1917 Tenn. LEXIS 154 (1918).

2. Coverage of Statute.

This statute includes all nonassessment insurance companies, life and fire, foreign and domestic. North British & Mercantile Co. v. Craig, 106 Tenn. 621, 62 S.W. 155, 1900 Tenn. LEXIS 197 (1901); Continental Fire Ins. Co. v. Whitaker & Dillard, 112 Tenn. 151, 79 S.W. 119, 1903 Tenn. LEXIS 95, 105 Am. St. Rep. 916, 64 L.R.A. 451 (1904).

3. Definitions.

Reserve is the amount required to be set aside by an insurance company to meet contract liabilities, but does not include the amount required to meet unpaid losses and liabilities, accrued or prospective. National Life & Acci. Ins. Co. v. Craig, 251 F. 524, 1918 U.S. App. LEXIS 1726 (6th Cir. Tenn. 1918).

Although a tax credit was allowed under T.C.A. § 56-4-217(a) for premium taxes paid by workers' compensation self-insurers under T.C.A. § 56-4-206, the tax credit for franchise and excise taxes paid under former T.C.A. § 56-4-217(b) did not apply to self insurers as well. Former T.C.A. § 56-4-217(b) was added to the statute at the same time and in conjunction with 56-4-217(c), which restricted its application to insurance companies as defined in T.C.A. § 56-1-102(2), therefore the credit described in former T.C.A. § 56-4-217(b) was also restricted to insurance companies and did not apply to the taxpayer as a workers'  compensation self-insurer. Saturn Corp. v. Johnson, 197 S.W.3d 273, 2006 Tenn. App. LEXIS 252 (Tenn. Ct. App. 2006).

4. Payment of Taxes.

Title guaranty company engaged in abstract, title insurance, and office rental businesses was not exempt from payment of capital stock tax on the ground that it was in the insurance business where chief source of income was from rental of office building. Commerce Title Guaranty Co. v. United States, 32 F. Supp. 73, 1940 U.S. Dist. LEXIS 3284 (W.D. Tenn. 1940), aff'd, 121 F.2d 452, 1941 U.S. App. LEXIS 3240 (6th Cir. 1941), aff'd, Commissioner v. Corning, 121 F.2d 452, 1941 U.S. App. LEXIS 3242 (6th Cir. 1941), aff'd, Commissioner v. Corning, 121 F.2d 452, 1941 U.S. App. LEXIS 3243 (6th Cir. 1941), aff'd, Commerce Title Guaranty Co. v. United States, 121 F.2d 452, 1941 U.S. App. LEXIS 3240 (6th Cir. 1941), cert. denied, 314 U.S. 657, 62 S. Ct. 110, 86 L. Ed. 526, 1941 U.S. LEXIS 499 (1941), cert. denied, Commerce Title Guaranty Co. v. United States, 314 U.S. 657, 62 S. Ct. 110, 86 L. Ed. 526, 1941 U.S. LEXIS 499 (1941).

56-1-103. Adoption of data disclosure requirements — Requests for data concerning rate adjustments.

  1. The commissioner shall adopt data disclosure requirements developed by the National Association of Insurance Commissioners for Property and Casualty Insurors.
  2. The commissioner is authorized to request other data that the commissioner deems necessary in considering requests for rate adjustments.

Acts 1987, ch. 438, § 1.

56-1-104. Standardized forms for health care insurance claims.

  1. The commissioner, in consultation with the commissioner of health, shall promulgate rules and regulations to effect the development and implementation of standardized forms for all health care insurance claims made in this state. In developing the rules and regulations, the commissioner shall give consideration to requiring the use of Form UB92.
  2. The commissioner and the commissioner of health shall develop and implement the standardized forms in consultation with the insurance companies offering for sale health care policies in this state.
  3. The commissioner, in consultation with the commissioner of health, shall promulgate the rules and regulations pursuant to the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
  4. All insurance companies offering for sale health care policies in this state shall require all policyholders and third party claimants to utilize the standardized forms when making a claim against any health care insurance policy in effect in this state.
  5. As used in this section, “standardized forms” includes, but is not necessarily limited to, electronic storage systems and information.

Acts 1993, ch. 277, § 1.

56-1-105. Exclusion of types of insurance from specific insurance definitions.

  1. Notwithstanding any law to the contrary, “accident and health insurance,” “accident and sickness insurance,” “health insurance,” “health benefit plan” or other similar term used in any legislation enacted after May 24, 2000, shall not include, unless specifically provided, the following types of insurance or any combination of these types of insurance: hospital indemnity, accident, dental, specified disease, disability income, long-term care, Champus supplement, or Medicare supplement, except as provided in this section.
  2. Nothing contained in this section shall apply to chapters 4 and 12 of this title.
  3. Nothing contained in this section shall apply to programs and services provided pursuant to Title XIX of the Social Security Act (42 U.S.C. § 1396 et seq.), and regulations promulgated pursuant to Title XIX of the Social Security Act.

Acts 2000, ch. 808, §§ 1-3.

56-1-106. Requests for information regarding complaints — Time limits — Exceptions — Penalties.

    1. Notwithstanding any other provision of law or rule to the contrary, if the department makes a request for information from an entity or individual licensed under this title, or required to be licensed under this title, concerning a complaint filed against the entity or individual, and the request requires a response, the entity or individual must respond to the request within a reasonable time.
      1. As used in this section, “reasonable time” means a period of time not to exceed thirty (30) days from the date the request is received by the entity or individual.
      2. For the purposes of this section, the response by the entity or individual shall constitute a response if it acknowledges the inquiry from the department and sets forth a time frame to address the substantive issues in the inquiry.
  1. This section does not apply to or preempt any other law that requires or allows the commissioner to require an individual or entity to respond to a request from the department within a period of time less than thirty (30) days.
  2. The commissioner may levy a civil penalty in the amount of one hundred dollars ($100) per day upon any entity or individual that fails to respond within a reasonable time.
  3. This section does not rescind or preempt any due process rights of entities regulated pursuant to this title.
  4. This section does not apply to entities subject to regulation by the department that participate in the TennCare program under Title XIX of the Social Security Act (42 U.S.C. § 1396 et seq.), or any successor to the TennCare program.

Acts 2004, ch. 496, § 1.

56-1-107. Authority to query the TBI's criminal history records system.

Notwithstanding any other law to the contrary, in conjunction with the issuance of licenses, permits and registrations and the investigation of consumer complaints, the department has the authority to query the Tennessee bureau of investigation's (TBI) Tennessee criminal history records system for the following information:

  1. Tennessee criminal history records;
  2. Tennessee repository for apprehension of persons (TRAP);
  3. State of Tennessee orders of protection files (STOP); and
  4. Criminal history records of the federal government and other states to which the TBI may have access. Criminal history records of the federal bureau of investigation may be obtained for the reasons listed in this section only if fingerprints are obtained and submitted through the TBI.

Acts 2004, ch. 557, § 1.

56-1-108. Study of impediments to insurance for use of justifiable force.

  1. The commissioner shall conduct a study of Tennessee's insurance laws to determine what impediments, if any, exist under the insurance laws or policies of this state that may be acting as deterrents for insurance companies in this state to underwrite policies of insurance to insure a person who has used force that is justified, including deadly force, in protecting such person's self or property pursuant to §§ 39-11-611 and 39-11-612, commonly referred to as the castle doctrine, or any other law.
  2. The commissioner shall report to the general assembly and to the governor the results of the study required by subsection (a) no later than March 1, 2012, with recommendations on whether such insurance should, in the commissioner's opinion, become available to Tennessee residents.

Acts 2011, ch. 429, § 1.

Cross-References. Reporting requirement satisfied by notice to general assembly members of publication of report, § 3-1-114.

56-1-109. License of person in default on student loans.

  1. As used in this section, unless the context otherwise requires:
    1. “Guarantee agency” means a guarantor of student loans that has an agreement with the United States secretary of education;
    2. “License” means a license, certification, registration, permit, approval or other similar document issued to an individual evidencing admission to or granting authority to engage in a profession, trade, occupation, business, or industry;
    3. “Licensing authority” means the department or any division, board, commission, committee, agency or other governmental entity under the authority of the department or attached to a division of the department that has been established by statute or regulation to oversee the issuance and regulation of any license; and
    4. “TSAC” means the Tennessee student assistance corporation.
    1. Upon receiving a copy of a final order as provided in subsection (c) from TSAC or a guarantee agency, each licensing authority shall suspend, deny or revoke the license of any person who has defaulted on a repayment or service obligation under any federal family education loan program, the federal Higher Education Act of 1965 (20 U.S.C. § 1001 et seq.), a student loan guaranteed or administered by TSAC, or any other state or federal educational loan or service-conditional scholarship program.
    2. Notwithstanding subdivision (b)(1), a licensing authority may elect not to suspend, deny, or revoke the license of a person if the default or delinquency is the result of a medical hardship that prevented the person from working in the person's licensed field and the medical hardship significantly contributed to the default or delinquency.
    1. Each licensing authority shall accept any determination of default from TSAC or a guarantee agency, after TSAC or the guarantee agency has afforded a debtor an opportunity to be heard in accordance with subdivision (c)(2); and the licensing authority shall rescind any disciplinary action and restore any license upon receiving notice from TSAC or the guarantee agency that the debtor has agreed to serve the debtor's obligation or is in compliance with an approved repayment plan.
      1. Unless a debtor has made satisfactory arrangements according to the lender, TSAC or the guarantee agency, which may include administrative wage garnishment, voluntary payment arrangements, deferment or forbearance, then the debtor shall be regarded as delinquent or in default. If a debtor is delinquent or in default on a repayment or service obligation under a guaranteed student loan identified in subsection (b), or the debtor has failed to enter into a payment plan, agreed to a service obligation or comply with a payment plan previously approved by TSAC or the guarantee agency, then TSAC or the guarantee agency shall issue to the debtor a notice of intent to file an order with the appropriate licensing authority to seek to suspend, deny or revoke the debtor's license. The notice shall:
        1. Be served upon the debtor personally or by certified mail with return receipt requested; and
        2. State that the debtor's license shall be suspended, denied or revoked ninety (90) days after service unless within that time the debtor:
          1. Pays the entire debt stated in the notice;
          2. Enters into a payment plan or service obligation, or complies with a payment plan previously entered into and approved by TSAC or the guarantee agency;
          3. Requests and qualifies for deferment, forbearance or other satisfactory compliance; or
          4. Requests a hearing before TSAC or the guarantee agency.
      2. The hearing request by the debtor shall be made in writing and must be received by TSAC or the guarantee agency within twenty (20) days of the date the notice is served.
      3. TSAC or the guarantee agency, upon receipt of a request for a hearing from the debtor, shall schedule a hearing to determine whether a determination of delinquency or default which could result in suspension, denial or revocation of the debtor's license is appropriate. The debtor's license may not be suspended, denied or revoked until a determination is reached following the hearing. The issues that may be determined in the hearing are:
        1. The amount of the debt, if any;
        2. Whether the debtor is delinquent or in default;
        3. Whether the debtor:
          1. Has entered into a payment plan or service obligation approved by TSAC or the guarantee agency;
          2. Is willing to enter into a payment plan or service obligation approved by TSAC or the guarantee agency; or
          3. Is willing to comply with a payment plan or service obligation previously entered into and approved by TSAC or the guarantee agency;
        4. Whether the debtor is eligible for deferment, forbearance or other satisfactory compliance; and
        5. Whether the debtor's default or delinquency is the result of a medical hardship that prevented the debtor from working in the debtor's licensed field and the medical hardship significantly contributed to the default or delinquency.
      4. If a debtor, without good cause, fails to respond to the notice of intent, fails to timely request a hearing, or fails to appear at a regularly scheduled hearing, the debtor's defenses, objections, or request for a payment plan or compliance with a payment plan may be determined to be without merit; and TSAC or the guarantee agency shall enter a final decision and order, requesting suspension, denial or revocation of the debtor's license, and further requesting the licensing authority to order the debtor to refrain from engaging in the licensed activity. TSAC or the guarantee agency shall send a copy of the order to the licensing authority and the debtor.
      5. The administrative hearings shall be conducted in accordance with rules and regulations adopted under the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
        1. When TSAC or the guarantee agency determines that the debt is paid in full or the debtor has entered into a payment plan, entered into a service obligation, is otherwise in satisfactory compliance or complied with a payment plan previously approved by TSAC or the guarantee agency, TSAC or the guarantee agency shall enter an order requesting that the licensing authority terminate the order suspending, denying or revoking the license. TSAC or the guarantee agency shall send a copy of the order to the licensing authority and the debtor. Notwithstanding any other law, rule or regulation to the contrary, when the license is reinstated, the licensing authority shall not impose a reinstatement fee that exceeds fifty dollars ($50.00).
        2. Entry of an order seeking to terminate suspension, denial or revocation of a license does not limit the ability of TSAC or the guarantee agency to issue a new order which seeks to suspend, deny or revoke the license of the same debtor in the event of another delinquency or default.
      6. TSAC is authorized to promulgate necessary rules and regulations to effectuate the purposes of this subsection (c). All such rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act.
  2. The commissioner is authorized to promulgate rules and regulations to effectuate the purposes of this section. All such rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act.

Acts 2012, ch. 519, § 1; 2018, ch. 744, §§ 7, 8.

Amendments. The 2018 amendment, effective January 1, 2019, added (b)(2) and (c)(2)(C)(v).

Effective Dates. Acts 2018, ch. 744, § 13. January 1, 2019; provided that for purposes of promulgating rules the act took effect April 18, 2018.

56-1-110. Claims to be brought in chancery court of Davidson county.

  1. Claims challenging liability imposed by this title must be brought in the chancery court of Davidson County pursuant to the procedures set out in title 67, chapter 1, part 9.
    1. The commissioner may, against any person, agency, or company licensed, registered, or permitted by or operating under a certificate of authority issued by the commissioner, or acting in an unlawful capacity that brings such person, agency, or company under the jurisdiction of the commissioner, assess the actual and reasonable costs of the investigation, prosecution, and hearing of any disciplinary action held in accordance with the contested case provisions of the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, part 3, in which sanctions of any kind are imposed on that person, agency, or company. These costs may include, but are not limited to, those incurred and assessed for the time of the prosecuting attorneys, investigators, expert witnesses, administrative judges, and any other persons involved in the investigation, prosecution, and hearing of the action.
    2. The commissioner may promulgate rules establishing a schedule of costs that may be assessed pursuant to this section. All rules must be promulgated in accordance with the Uniform Administrative Procedures Act.
      1. All costs assessed pursuant to this section become final thirty (30) days after the date of a final order of assessment is served.
      2. If the individual or entity disciplined fails to pay an assessment when it becomes final, the commissioner may apply to the chancery court of Davidson County, which shall have jurisdiction over recovery of the costs, for a judgment and seek execution of the judgment.

Acts 2018, ch. 873, § 2.

Effective Dates. Acts 2018, ch. 873, § 18. May 3, 2018.

Part 2
Organization and Personnel

56-1-201. Creation of department of commerce and insurance.

There is created a department of commerce and insurance, whose chief officer is the commissioner.

Acts 1913, ch. 1, § 1; Shan., § 3276; impl. am. Acts 1923, ch. 7, §§ 50, 51; mod. Code 1932, § 6088; modified; impl. am. Acts 1971, ch. 137, §§ 1, 2; T.C.A. (orig. ed.), § 56-103.

Compiler's Notes. The department of commerce and insurance, created by §§ 4-3-101 and 4-3-1301, terminates June 30, 2023. See §§ 4-29-112, 4-29-244.

Cross-References. Advisory committee, § 56-1-210.

Department of commerce and insurance, §§ 4-3-101, 4-3-1303.

Sheep Producers' Indemnity Law, commissioner acting in supervisory capacity, § 44-14-117.

56-1-202. Commissioner head of department.

The commissioner shall be and act as the head of the department.

Acts 1923, ch. 7, § 51; Shan. Supp., § 373a113; Code 1932, § 330; impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-104.

Cross-References. Accounting for fees received, §§ 8-22-1188-22-121.

Deputy fire marshals, appointment, § 68-102-104.

Fire prevention duties, §§ 68-102-102, 68-102-103.

Fire prevention instructions and forms, preparation and distribution, § 68-102-110.

Preventing and investigating destructive fires, duties, § 68-102-101.

Review of fire and life safety codes under law regulating health and related facilities, § 68-11-202.

56-1-203. Commissioner not to be financially interested in insurance corporations.

The commissioner shall not be financially interested, directly or indirectly, in any insurance corporation subject to the supervision of the department.

Acts 1923, ch. 7, § 54; Shan. Supp., § 373a117; Code 1932, § 334; Acts 1933, ch. 92, § 1; C. Supp. 1950, § 334; impl. am. Acts 1971, ch. 137, §§ 1, 2; T.C.A. (orig. ed.), § 56-106.

Collateral References.

Interest as stockholder or officer of corporation with which contract is made as effecting disqualification for serving in office. 140 A.L.R. 356.

56-1-204. Inquisitorial power given commissioner and deputies.

Inquisitorial power is given to the commissioner or the commissioner's deputies to inquire into any violation of this title, and to examine any person under oath, and to compel production of books, records, or papers relative to the inquiry.

Acts 1919, ch. 170, § 3; Shan. Supp., § 3323a1; Code 1932, § 6152; Acts 1978, ch. 530, § 1; T.C.A. (orig. ed.), § 56-107.

56-1-205. Traveling expenses of commissioner.

The commissioner is entitled to, and shall be paid, all necessary traveling expenses, including railroad fare and hotel bills paid while away from the commissioner's office on official business.

Acts 1913, ch. 1, § 5; Shan., § 3276a4; impl. am. Acts 1923, ch. 7, §§ 50, 51; Code 1932, § 6089; T.C.A. (orig. ed.), § 56-108.

56-1-206. Special deputy commissioner — Compensation limited to half of fines.

  1. The commissioner is empowered, with the consent of the governor, to appoint special deputy commissioners for the better enforcement, and to apprehend all persons found in violation, of the insurance laws of this state.
  2. The special deputies shall be clothed with powers as may be delegated by the commissioner.
  3. The compensation of special deputy commissioners shall be limited to one half (½) of any fine assessed against any person found guilty of violating any of the insurance laws of this state; provided, that the fine so assessed shall be due to the efforts of the special deputy commissioner arresting or causing the arrest of the guilty person.

Acts 1919, ch. 131, § 1; Shan. Supp., § 3276a6; mod. Code 1932, § 6090; T.C.A. (orig. ed.), § 56-109.

Cross-References. See note to § 56-1-207. Pack v. Royal-Globe Ins. Cos., 224 Tenn. 452, 457 S.W.2d 19, 1970 Tenn. LEXIS 343 (1970).

56-1-207. Employment of actuaries by commissioner — Duties — Compensation.

  1. The commissioner is authorized to employ not more than three (3) actuaries, the qualifications of whom shall be acceptable to the commissioner, together with assistants deemed necessary by the commissioner for efficient administration of duties assigned to the actuaries. The commissioner shall assign the duties to be performed by the actuaries and assistants for the department.
  2. The commissioner shall fix the compensation of the actuaries and assistants employed pursuant to this section and shall provide for the payment of expenses incurred by the actuaries and assistants while engaged in the performance of the duties assigned; provided, that any salary or per diem compensation shall not exceed a reasonable amount commensurate with usual compensation for like services, and the allowances of expenses shall not exceed the actual expenses incurred.

Acts 1943, ch. 97, § 1; C. Supp. 1950, § 6459.40 (Williams, § 6459.43); Acts 1961, ch. 31, § 1; impl. am. Acts 1971, ch. 137, §§ 1, 2; T.C.A. (orig. ed.), § 56-110.

NOTES TO DECISIONS

1. Successor Commissioner's Right to Rule.

Successor to commissioner was authorized to make specific findings as to reasons for denial of rate increases by his predecessor where record indicated record of statistical data and transcript of testimony of witnesses were available and there was no indication in the record that deputies, assistants, actuaries or other office personnel involved in the original proceeding had resigned. Pack v. Royal-Globe Ins. Cos., 224 Tenn. 452, 457 S.W.2d 19, 1970 Tenn. LEXIS 343 (1970).

56-1-208. Actuaries to compute net value of policies — Other duties.

  1. The commissioner shall require the actuaries employed pursuant to § 56-1-207 to compute the net value of outstanding policies of life insurance in companies, associations or fraternal orders authorized to transact business in this state as required by law.
  2. The commissioner may assign other duties to the actuaries that the commissioner deems necessary or proper.

Acts 1943, ch. 97, § 2; C. Supp. 1950, § 6459.41 (Williams, § 6459.44); impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-111.

56-1-209. Payment of expenses of department — Record of receipts and expenditures — Excess fees.

The commissioner shall pay out of the fees of the commissioner's office the necessary expenses of the department, shall keep an accurate record of all receipts and expenditures, and shall require and preserve sworn vouchers for each payment. The excess of fees, after paying necessary expenses, shall be turned into the state treasury.

Acts 1895, ch. 160, § 39; Shan., § 3324; mod. Code 1932, § 6153; T.C.A. (orig. ed.), § 56-138.

56-1-210. Advisory committee.

  1. The commissioner shall appoint an advisory committee to assist the department. The advisory committee shall be composed of not more than twelve (12) members who are qualified professionals in the health insurance industry and related health fields.
  2. The advisory committee shall meet with the commissioner or the commissioner's designee and shall report periodically to the department on its findings.

Acts 1985, ch. 388, § 3.

56-1-211. Office to assist older persons concerning insurance.

  1. The commissioner shall establish within the department an office to assist older Tennesseans in understanding, evaluating, and comparing insurance products available to them. The projects, programs, and services of the office shall be coordinated with those of the commission on aging and disability created by § 71-2-104. The office shall devote particular attention to addressing questions involving medicare supplement insurance policies.
  2. Subject to the limits of any appropriation by the general assembly, the commissioner may, through the office established under subsection (a):
    1. Employ or contract for the services of a consultant approved by the commission on aging and disability;
    2. Train the consultant to meet with and appear before senior citizens groups to disseminate and gather information on insurance products of interest to them;
    3. Develop a computer system capable of comparing features and rates of various insurance policies;
    4. Reimburse volunteers for travel expenses incurred in connection with the performance of duties assigned by the office; and
    5. Undertake any other activities that are reasonably necessary to accomplish the purposes of this section.

Acts 1988, ch. 986, § 2.

Compiler's Notes. The term “commission on aging and disability” was substituted for “commission on aging” pursuant to Acts 2001, ch. 397.

Cross-References. Supplemental medical insurance for retired state employees and teachers, title 8, ch. 27, part 7.

56-1-212. Commissioner's authority to regulate — Conversion of health insurance business.

  1. Notwithstanding any provision of this title to the contrary, the commissioner shall have the same authority to regulate and shall apply the same substantive standards to hospital and medical service corporations licensed pursuant to chapter 29 of this title as shall apply to health insurers doing business pursuant to chapter 26, part 1 of this title.
    1. Prior to engaging in any transaction or series of transactions the net effect of which shall be to effectuate the conversion by any method, directly or indirectly, of all or substantially all of the health insurance business of the nonprofit hospital and medical service corporation, as measured by annual revenue on a consolidated basis, to a for-profit entity of any kind the equity interest of which is not wholly owned by the corporation or its insureds, the service corporation shall file with the commissioner a written notice of its intention to do so. The commissioner shall, upon receipt of the notice, forward a copy of the notice to the governor and to the speaker of the house of representatives and the speaker of the senate. The service corporation shall take no action to effectuate the completion of the conversion for a period of one (1) year from the date of the filing, or until the end of the next regular session of the general assembly in the year following the year in which the notice is given in the event the one-year period does not include a full, regular legislative session of the general assembly.
    2. For the purposes of subdivision (b)(1):
      1. “All or substantially all of the health insurance business” shall not include the sale of all or part of the assets of equity interest in a subsidiary company unless the subsidiary company constitutes in excess of seventy-five percent (75%) of the total consolidated annual revenue of the service corporation as reflected on its annual statement for the preceding year; and
      2. The transfer of health insurance business of the service corporation shall not be deemed to include the contracting or subcontracting of business or business functions.
  2. Notwithstanding any law to the contrary, the board of directors of the service corporation licensed pursuant to chapter 29 of this title, shall meet all of the requirements for boards of directors of nonprofit corporations pursuant to title 48, chapter 58, part 1. To the extent that chapter 29 of this title conflicts with title 48, chapter 58, title 48, chapter 58 shall control.

Acts 2003, ch. 96, § 1.

56-1-213. Fee to cover costs of issuing or renewing licenses, registrations and permits.

The commissioner is authorized to promulgate, by rule, a convenience fee to cover the costs of issuing or renewing licenses, registrations and permits. Any fee set by rule under the authority of this section may be assessed in addition to the fee or fees assessed for the costs of issuing or renewing licenses, registrations and permits by mail or in person. In no event shall the fee exceed the actual costs incurred in issuing or renewing a license, registration or permit.

Acts 2005, ch. 375, § 1; 2016, ch. 838, § 2.

Amendments. The 2016 amendment deleted “via the Internet” at the end of the first sentence; and deleted “on the Internet” at the end of the second sentence.

Effective Dates. Acts 2016, ch. 838, § 13. July 1, 2016.

Part 3
Division of Regulatory Boards

56-1-301. Director for division of regulatory boards.

The commissioner shall employ a director for the division of regulatory boards created under § 4-3-1303.

Acts 1978, ch. 906, § 1; modified; T.C.A., § 56-145.

56-1-302. Powers, duties and responsibilities of director — Alternative method of license renewals.

  1. Notwithstanding any contrary law, except title 55, chapter 17, the director has the power, duty and responsibility to:
    1. Act as chief administrative officer for each board;
    2. Employ all consultants, investigators, inspectors, legal counsel, and other personnel necessary to staff and carry out the functions of the boards, and assign the personnel in a manner designed to ensure their most efficient use, excluding the board of pharmacy and the state board for licensing contractors;
    3. Provide office space and necessary quarters for the boards;
    4. Maintain a central filing system for official records and documents of all boards;
    5. Promulgate rules and regulations for all administrative functions and activities of the boards;
    6. Enforce all regulations promulgated by the boards;
    7. Collect and account for all fees prescribed to be paid to each board, and, unless otherwise prescribed by law, deposit the fees in the state treasury, and the commissioner of finance and administration shall make allotments out of the general fund as may be necessary to defray the expenses of the division and boards as provided by law;
    8. Perform other duties the commissioner prescribes, or as prescribed by law;
      1. Issue monthly a press release containing a disciplinary report, which shall list all disciplinary actions taken by each board during the prior month. The report shall list, by board, the following:
        1. Name and professional address of any person disciplined the prior month;
        2. Disciplinary action taken; and
        3. Any civil penalty imposed; and
      2. The disciplinary report for the prior month shall be made available to newspapers of general circulation in each of the state's metropolitan areas, Nashville, Memphis, Knoxville, Chattanooga and the tri-cities area composed of Bristol, Johnson City and Kingsport, by the fifteenth of each following month.
      1. Notwithstanding any other law to the contrary, the director shall establish an alternative system of renewals of licenses issued by any regulatory board attached to the division of regulatory boards of the department under § 4-3-1304. The system shall be designed to allow for the distribution of the renewal workload as uniformly as is practicable throughout the calendar year.
      2. Licenses issued under the alternative method are valid for twenty-four (24) months, and shall expire on the last day of the last month of the license period; however, during a transition period or at any time thereafter, if the director, after consultation with the affected board or boards, determines that the volume of work for any given interval is unduly burdensome or costly, either the licenses or renewals, or both of them, may be issued for terms of not less than six (6) months nor more than eighteen (18) months. The fee imposed for any license under the alternative interval method for a period other than twenty-four (24) months shall be proportionate to the annual fee and modified in no other manner, except that the proportional fee shall be rounded off to the nearest quarter of a dollar (25¢).
    1. As used in subdivision (b)(1), “license” is defined as in § 4-5-102.
  2. Notwithstanding any other law to the contrary, the director of the division of regulatory boards of the department may implement a system for electronic submission of complaints or applications for licensure or registration to any regulatory program attached to the division, including any renewal thereof, and to notify licensees electronically of renewals, rulemaking or any other notification.

Acts 1978, ch. 906, § 1; modified; T.C.A., § 56-145; Acts 1980, ch. 573, § 1; impl. am. Acts 1983, ch. 311, §§ 1-8; Acts 1983, ch. 313, § 1; 1989, ch. 389, § 3; 1990, ch. 1026, § 34; 2013, ch. 138, § 1; 2017, ch. 454, § 1.

Amendments. The 2017 amendment, in (a)(2), inserted the comma following “legal counsel”, substituted “ensure” for “assure” following “designed to”, and added “and the state board for licensing contractors” at the end.

Effective Dates. Acts 2017, ch. 454, § 6. May 25, 2017.

Cross-References. Penalty for violation of statute, rule or order, § 56-1-308.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

Attorney General Opinions. T.C.A. § 62-1-105 gives the board of accountancy the sole authority to hire and terminate its executive director and any other member of its staff requiring professional qualifications, OAG 04-060,  2004 Tenn. AG LEXIS 58 (4/08/04).

56-1-303. Consultations with boards — Conclusiveness of director's decisions.

In providing the administrative functions required under §§ 56-1-301, 56-1-302 and 56-1-306, the director shall consult with each board as to its particular requirements, but the decision of the director in such matters shall be conclusive, except as otherwise directed by the commissioner.

Acts 1978, ch. 906, § 1; modified; T.C.A., § 56-145.

56-1-304. Director as member of each board — Notice to director of meetings.

  1. The director or the director's duly authorized representative shall be an ex officio, nonvoting member of each board attached to the department, and shall be entitled to attend all meetings of the boards.
  2. Each board shall advise the director of any meetings at which official action will be taken at least forty-eight (48) hours prior to the meeting, unless the director expressly waives the requirement.

Acts 1978, ch. 906, § 2; modified; T.C.A., § 56-145.

56-1-305. Bond of director and assistants.

The director, and any assistants designated by the commissioner, shall give bond as provided by law, conditioned upon the faithful performance of the duties of the office and for the faithful accounting of all money and other property that comes into their hands.

Acts 1978, ch. 906, § 3; modified; T.C.A., § 56-145.

56-1-306. Personnel.

Any employment of personnel by the director for the division of regulatory boards shall be in accordance with rules of the departments of human resources and finance and administration.

Acts 1978, ch. 906, § 1; modified; T.C.A., § 56-145; Acts 2017, ch. 454, § 2.

Compiler's Notes. The reference to the “departments of personnel and” was changed to the “departments of human resources and” pursuant to Acts 2007, ch. 60, § 3, effective April 24, 2007.

Amendments. The 2017 amendment inserted “by the director for the division of regulatory boards” following “personnel”.

Effective Dates. Acts 2017, ch 454, § 6. May 25, 2017.

56-1-307. Per diem and travel expenses of board, commission or agency members.

  1. Members of each board, commission, or agency attached to the division of regulatory boards created under § 4-3-1303 shall receive the sum of fifty dollars ($50.00) for each day actually spent in the performance of their official duties.
  2. All reimbursement for travel expenses shall be in accordance with the comprehensive travel regulations promulgated by the department of finance and administration and approved by the attorney general and reporter.

Acts 1984, ch. 676, § 13.

56-1-308. Penalty for violation of statute, rule or order — Recovery.

  1. With respect to any person required to be licensed, permitted, or authorized by any board, commission or agency attached to the division of regulatory boards, each respective board, commission or agency may assess a civil penalty against the person in an amount not to exceed one thousand dollars ($1,000) for each separate violation of a statute, rule or order pertaining to the board, commission or agency. Each day of continued violation constitutes a separate violation.
  2. Each board, commission or agency shall by rule establish a schedule designating the minimum and maximum civil penalties that may be assessed under this section. In assessing civil penalties, the following factors may be considered:
    1. Whether the amount imposed will be a substantial economic deterrent to the violator;
    2. The circumstances leading to the violation;
    3. The severity of the violation and the risk of harm to the public;
    4. The economic benefits gained by the violator as a result of noncompliance; and
    5. The interest of the public.
    1. Civil penalties assessed pursuant to this section shall become final thirty (30) days after the date a final order of assessment is served. Payment of any civil penalty assessed after a hearing held pursuant to the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, is a prerequisite to issuance or renewal of any license issued by a board, commission or agency attached to the division unless the final decision of the board, commission or agency is stayed pursuant to § 4-5-322(c), or acceptable arrangements for payment of the civil penalty are made with the board, commission or agency prior to the issuance or renewal of any license issued by a board, commission or agency attached to the division.
    2. If the violator fails to pay an assessment when it becomes final, the division may apply to the appropriate court for a judgment and seek execution of the judgment.
    3. Jurisdiction for recovery of the penalties shall be in the chancery court of Davidson County, or the chancery court of the county in which all or part of the violations occurred.
  3. All sums recovered pursuant to this section shall be paid into the state treasury.

Acts 1984, ch. 785, § 1; 1989, ch. 389, § 1; 2013, ch. 138, § 2.

Cross-References. Press release of disciplinary actions, § 56-1-302.

56-1-309. Expenditure estimates — Improvement recommendations.

Before submitting an estimate of its expenditure requirements as provided in § 9-4-5103, the department shall consult with each board, commission, or agency that is attached to the division of regulatory boards created under § 4-3-1303 and is authorized or required to collect any fees. The board, commission, or agency shall timely submit to the commissioner an itemized list of any improvements recommended for inclusion in the department's expenditure estimate. In the preparation of the estimate, the department shall clearly indicate the disposition of each improvement recommendation received under this section. The department shall transmit with its expenditure estimate a copy of each list of recommended improvements received under this section to the commissioner of finance and administration.

Acts 1989, ch. 523, § 180.

56-1-310. Moneys collected by boards attached to division of regulatory boards — Separate account in state general fund.

  1. Notwithstanding any law to the contrary, all moneys collected by any board attached to the division of regulatory boards pursuant to § 4-3-1304 shall be deposited in the state general fund and credited to a separate account for each board.
  2. Disbursements from the accounts shall be made solely for the purpose of defraying expenses incurred in the implementation and enforcement of the boards' areas of regulation.
  3. The expenses shall not be paid from any other state funds.
  4. Funds remaining in board accounts at the end of any fiscal year shall not revert to the general fund but shall remain available for expenditure in accordance with law.

Acts 1991, ch. 440, § 1.

56-1-311. Assessment of investigatory and hearing costs — Rules and regulations.

  1. Notwithstanding any contrary law, the division of regulatory boards or any board, commission or agency attached to the division of regulatory boards may assess the actual and reasonable costs of the investigation, prosecution and hearing of any disciplinary action held in accordance with the contested case provisions of the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, part 3, and in which sanctions of any kind are imposed on any person or entity required to be licensed, permitted, registered or otherwise authorized by the division or respective board, commission or agency. These costs may include, but are not limited to, those incurred and assessed for the time of the prosecuting attorneys, investigators, expert witnesses, administrative judges and any other persons involved in the investigation, prosecution and hearing of the action.
  2. The commissioner shall promulgate rules and regulations establishing a schedule of costs that may be assessed pursuant to this section.
    1. All costs assessed pursuant to this section shall become final thirty (30) days after the date a final order of assessment is served.
    2. If the individual or entity disciplined fails to pay an assessment when it becomes final, the division may apply to the appropriate court for a judgment and seek execution of the judgment.
    3. Jurisdiction for recovery of the costs shall be in the chancery court of Davidson County.

Acts 1998, ch. 655, § 1.

Compiler's Notes. Acts 1998, ch. 655, § 2 provided that this act shall apply only to the division of regulatory boards and shall not apply to the division of insurance or the securities division.

56-1-312. Default on student loans by members of regulated professions.

    1. Upon receiving a copy of a final order as provided in subsection (b) from the Tennessee student assistance corporation (TSAC), or a guarantee agency that has an agreement with the United States secretary of education, referred to as “guarantee agency” in this section, each board, commission or agency, referred to as the “licensing authority” in this section, attached to the division of regulatory boards shall suspend, deny or revoke the license of, or take other appropriate disciplinary action against, any person who has defaulted on a repayment or service obligation under any federal family education loan program, the federal Higher Education Act of 1965 (20 U.S.C. § 1001 et seq.), as amended, a student loan guaranteed or administered by TSAC, or any other state or federal educational loan or service-conditional scholarship program.
    2. Notwithstanding subdivision (a)(1), a licensing authority may elect not to suspend, deny, or revoke the license of a person if the default or delinquency is the result of a medical hardship that prevented the person from working in the person's licensed field and the medical hardship significantly contributed to the default or delinquency.
    1. Each board, commission, committee, agency or other governmental entity created pursuant to this title shall accept any determination of default from TSAC or a guarantee agency, after TSAC or the guarantee agency has afforded a debtor an opportunity to be heard in accordance with subdivision (b)(2); and the board, commission, committee, agency or other governmental entity shall rescind any disciplinary action and restore any license or certificate upon receiving notice from the corporation or guarantee agency that the person has agreed to serve the person's obligation or is in compliance with an approved repayment plan.
      1. Unless a debtor has made satisfactory arrangements according to the lender, TSAC or the guarantee agency, which may include administrative wage garnishment, voluntary payment arrangements, or deferment/forbearance, then the debtor shall be regarded as delinquent or in default. If a debtor is delinquent or in default on a repayment or service obligation under a guaranteed student loan identified in subsection (a), or the debtor has failed to enter into a payment plan or comply with a payment plan previously approved by TSAC or the guarantee agency, then TSAC or the guarantee agency shall issue to the debtor a notice of intent to file an order with the appropriate licensing authority to suspend, deny or revoke the debtor's license or certificate. The notice must:
        1. Be served upon the debtor personally or by certified mail with return receipt requested; and
        2. State that the debtor's license or certificate will be suspended, denied or revoked ninety (90) days after service unless within that time the debtor:
          1. Pays the entire debt stated in the notice;
          2. Enters into a payment plan or complies with a payment plan previously entered into and approved by TSAC or the guarantee agency; or
          3. Requests a hearing before TSAC or the guarantee agency.
      2. The hearing request by the debtor shall be made in writing and must be received by TSAC or the guarantee agency within twenty (20) days of the date the notice is served.
      3. TSAC or the guarantee agency, upon receipt of a request for a hearing from the debtor, shall schedule a hearing to determine whether suspension, denial or revocation of the debtor's license or certificate is appropriate. The debtor's license or certificate may not be suspended, denied or revoked until a determination is reached following the hearing. The only issues that may be determined in the hearing are:
        1. The amount of the debt, if any;
        2. Whether the debtor is delinquent or in default;
        3. Whether the debtor has entered into, or the debtor is willing to enter into, a payment plan or to comply with a payment plan previously entered into and approved by TSAC or the guarantee agency; and
        4. Whether the debtor's default or delinquency is the result of a medical hardship that prevented the debtor from working in the debtor's licensed field and the medical hardship significantly contributed to the default or delinquency.
      4. If a debtor fails to respond to the notice of intent, fails to timely request a hearing, or fails to appear at a regularly scheduled hearing, the debtor's defenses, objections, or request for a payment plan or compliance with a payment plan may be determined to be without merit; and TSAC or the guarantee agency shall enter a final decision and order, requesting suspension, denial or revocation of the debtor's license or certificate, and further requesting the licensing authority to order the debtor to refrain from engaging in the licensed activity or activity for which a certificate has been issued. TSAC or the guarantee agency shall send a copy of the order to the licensing authority and the debtor.
      5. The administrative hearings shall be conducted in the same manner as those conducted pursuant to §§ 36-5-703 and 36-5-704.
        1. When TSAC or the guarantee agency determines that the debt is paid in full or the debtor has entered into a payment plan or complied with a payment plan previously approved by TSAC or the guarantee agency, TSAC or the guarantee agency shall terminate the order suspending, denying or revoking the license or certificate. TSAC or the guarantee agency shall send a copy of the order terminating the suspension, denial or revocation to the licensing authority and the debtor. Notwithstanding any other law, rule or regulation to the contrary, when the license or certificate is reinstated, the licensing authority shall not impose a reinstatement fee that exceeds fifty dollars ($50.00).
        2. Entry of an order terminating suspension, denial or revocation of a license or certificate does not limit the ability of TSAC or the guarantee agency to issue a new order suspending, denying or revoking the license or certificate of the same debtor in the event of another delinquency or default.
      6. TSAC is authorized to promulgate necessary rules and regulations in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, to implement this subsection (b).
  1. Each board, commission or agency attached to the division of regulatory boards shall promulgate rules and regulations to effectuate the purposes of this section.

Acts 1999, ch. 476, § 2; 2018, ch. 744, §§ 9, 10.

Amendments. The 2018 amendment, effective January 1, 2019, added (a)(2) and (b)(2)(C)(iv).

Effective Dates. Acts 2018, ch. 744, § 13. January 1, 2019; provided that for purposes of promulgating rules the act took effect April 18, 2018.

56-1-313. Disciplinary authority of governmental entities attached to the division of regulatory boards.

  1. In addition to any other lawful disciplinary authority, any board, commission or agency attached to the division of regulatory boards may, upon receipt of a certified order, refuse to issue or renew a license, permit or authorization to practice, and revoke, suspend or restrict any license, permit or authorization to practice that the board, commission, or agency has issued to any person who:
    1. Has had the person's license, permit or authorization to practice in the profession or occupation subject to the jurisdiction of the board, commission or agency suspended or revoked by another state or national board, commission or agency for any acts or omissions that would constitute grounds for discipline in this state; or
    2. Has voluntarily surrendered the person's license, permit or authorization to practice in the profession or occupation that is subject to the jurisdiction of the board, commission or agency, as a result of or during the pendency of disciplinary proceedings by another state or national board, commission or agency, for any acts or omissions that would constitute grounds for discipline in this state.
  2. The Uniform Administrative Procedures Act, compiled in title 4, chapter 5, shall govern all matters and procedures respecting the hearing and judicial review of any contested case, as defined in § 4-5-102, arising under the authority of this section.
  3. Any board, commission or agency attached to the division of regulatory boards is authorized to promulgate rules to effectuate the purposes of this section. The rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act.

Acts 2005, ch. 285, § 1.

Part 4
Financial Valuations and Examination of Companies

56-1-401. Examination of companies by commissioner before granting of certificate to do business.

Before granting certificates of authority to an insurance company to issue policies or make contracts of insurance, the commissioner shall be satisfied, by such examination and evidence as the commissioner sees fit to make and require, that the company is duly qualified under the laws of the state to transact business in the state.

Acts 1895, ch. 160, § 4; Shan., § 3277; Code 1932, § 6091; T.C.A. (orig. ed.), § 56-113.

Cross-References. Fraternal benefit societies, examination by commissioner, § 56-25-604.

Law Reviews.

Legal Problems in the Organization and Operation of Group Health Plans (Horace R. Hansen), 5 Vand. L. Rev. 14 (1951-1952).

NOTES TO DECISIONS

1. Certificate as Evidence.

The certificate of the commissioner to the effect that a certain foreign insurance company had complied with the laws of the state, and was authorized to transact business in the state, was prima facie evidence that the company was incorporated, and was admissible as evidence on behalf of the state against a person accused of an attempt to get money under false pretenses from it. Rafferty v. State, 91 Tenn. 655, 16 S.W. 728, 1891 Tenn. LEXIS 108 (1891).

2. Effect of Acting Under Certificate.

A company having acted under a certificate would not be heard to deny its incorporation to escape liability. Rafferty v. State, 91 Tenn. 655, 16 S.W. 728, 1891 Tenn. LEXIS 108 (1891).

3. Relation to Other Laws.

Title guaranty company which obtained license from department to issue title insurance and which filed annual reports with department and submitted to examination by the department was not in the “insurance” business within meaning of capital stock tax exempting insurance companies where chief source of income was from rental of office building. Commerce Title Guaranty Co. v. United States, 32 F. Supp. 73, 1940 U.S. Dist. LEXIS 3284 (W.D. Tenn. 1940), aff'd, 121 F.2d 452, 1941 U.S. App. LEXIS 3240 (6th Cir. 1941), aff'd, Commissioner v. Corning, 121 F.2d 452, 1941 U.S. App. LEXIS 3242 (6th Cir. 1941), aff'd, Commissioner v. Corning, 121 F.2d 452, 1941 U.S. App. LEXIS 3243 (6th Cir. 1941), aff'd, Commerce Title Guaranty Co. v. United States, 121 F.2d 452, 1941 U.S. App. LEXIS 3240 (6th Cir. 1941), cert. denied, 314 U.S. 657, 62 S. Ct. 110, 86 L. Ed. 526, 1941 U.S. LEXIS 499 (1941), cert. denied, Commerce Title Guaranty Co. v. United States, 314 U.S. 657, 62 S. Ct. 110, 86 L. Ed. 526, 1941 U.S. LEXIS 499 (1941).

Collateral References.

Insurance agent's license, statutory provision for cancellation or suspension or refusal to renew as involving unconstitutional delegation of legislative power to insurance commissioner. 154 A.L.R. 1148.

56-1-402. [Repealed.]

Acts 1895, ch. 160, § 8; Shan., § 3288; Code 1932, § 6103; Acts 1945, ch. 56, § 1; C. Supp. 1950, § 6103; Acts 1963, ch. 140, §§ 1, 2; T.C.A. (orig. ed.), § 56-114; Acts 1995, ch. 363, § 1; repealed by Acts 2013, ch. 260, § 1, effective July 1, 2013.

Compiler's Notes. Former § 56-1-402 concerned annual valuation of life policies, reserve liabilities and annuity and endowment contracts.

56-1-403. [Repealed.]

Acts 1895, ch. 160, § 8; Shan., § 3289; Code 1932, § 6104; Acts 1945, ch. 56, § 2; C. Supp. 1950, § 6104; Acts 1961, ch. 37, § 1; 1963, ch. 140, § 3; 1973, ch. 203, §§ 1-3; 1976, ch. 430, § 2; 1978, ch. 591, § 1; T.C.A. (orig. ed.), § 56-115; Acts 1982, ch. 660, § 2; repealed by Acts 2013, ch. 260, § 1, effective July 1, 2013.

Compiler's Notes. Former § 56-1-403 concerned standard valuation law.

56-1-404. Determination of liability upon contracts of insurance on policies other than life for reinsurance.

To determine the liability upon the contracts of insurance for insurance companies doing business in this state, foreign and domestic, other than life, the commissioner shall require the companies to charge, as the liability for reinsurance of outstanding policies, fifty percent (50%) of the premiums received on policies or risks having not more than one (1) year to run, and a pro rata of all premiums received on policies or risks having more than one (1) year to run.

Acts 1895, ch. 160, § 8; 1897, ch. 37, § 1; Shan., § 3290; Code 1932, § 6105; Acts 1947, ch. 173, § 1; C. Supp. 1950, § 6105; T.C.A. (orig. ed.), § 56-116.

Cross-References. Reinsurance contracts, §§ 56-2-20756-2-209.

56-1-405. Assets allowable as credits in account of financial condition.

The commissioner shall allow to the credit of an insurance company in the account of its financial condition only the assets that are or can be made available for the payment of losses in the state, but may credit any deposits of funds of the company set apart as security for a particular liability, or any deposits of funds of the company that are deposited for the purpose of meeting the requirements for doing business in another state or commonwealth. The commissioner may, in the commissioner's discretion, disallow stockholders' obligations of any description as part of the assets or capital of any insurance company, unless secured by competent collateral.

Acts 1895, ch. 160, § 8; Shan., § 3291; Code 1932, § 6106; modified; T.C.A. (orig. ed.), § 56-117; Acts 1998, ch. 678, § 1.

56-1-406. Commissioner is custodian of collateral deposited.

The commissioner shall be the custodian of all collateral in the form of stock certificates, bonds, debentures, notes and other evidences of indebtedness deposited or pledged with the commissioner under any existing law, and it shall be the commissioner's official duty safely to keep, surrender and account for the collateral deposited as provided by law, and for the safekeeping of that collateral both the commissioner and the sureties on the commissioner's official bond are liable.

Acts 1937, ch. 203, § 1; C. Supp. 1950, § 6088.1; impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-118.

56-1-407. Valuation of bonds held by insurance companies — Basis.

  1. All bonds or other evidences of debt having a fixed term and rate held by any life insurance company, assessment life association, or fraternal beneficiary association, authorized to do business in this state, may, if amply secured and not in default as to principal and interest, be valued as follows:
    1. If purchased at par, at par value; or
    2. If purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made.
  2. The purchase shall in no case be taken at a higher figure than the actual market value at the time of purchase.
  3. The commissioner shall have full discretion in determining the method of calculating values according to subsection (a).

Acts 1921, ch. 128, § 1; Shan. Supp., § 3281a1; Code 1932, § 6096; T.C.A. (orig. ed.), § 56-119.

56-1-408. Examination of insurance companies — Frequency.

As often as once in five (5) years, the commissioner shall, personally or by a deputy or some competent person appointed by the commissioner for that purpose, visit each insurance company licensed in this state and examine its affairs, especially as to its financial condition and ability to fulfill its obligations, and whether it has complied with the law.

Acts 1895, ch. 160, § 4; Shan., § 3278; Code 1932, § 6092; T.C.A. (orig. ed.), § 56-120; Acts 1983, ch. 85, § 1; 1993, ch. 253, § 1.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

NOTES TO DECISIONS

1. Relation to Other Laws.

Title guaranty company which obtained license from state insurance department to issue title insurance and which filed annual reports with department and submitted to examinations by the department was not in the “insurance” business within meaning of capital stock tax exempting insurance companies where chief source of income was from rental of office building. Commerce Title Guaranty Co. v. United States, 32 F. Supp. 73, 1940 U.S. Dist. LEXIS 3284 (W.D. Tenn. 1940), aff'd, 121 F.2d 452, 1941 U.S. App. LEXIS 3240 (6th Cir. 1941), aff'd, Commissioner v. Corning, 121 F.2d 452, 1941 U.S. App. LEXIS 3242 (6th Cir. 1941), aff'd, Commissioner v. Corning, 121 F.2d 452, 1941 U.S. App. LEXIS 3243 (6th Cir. 1941), aff'd, Commerce Title Guaranty Co. v. United States, 121 F.2d 452, 1941 U.S. App. LEXIS 3240 (6th Cir. 1941), cert. denied, 314 U.S. 657, 62 S. Ct. 110, 86 L. Ed. 526, 1941 U.S. LEXIS 499 (1941), cert. denied, Commerce Title Guaranty Co. v. United States, 314 U.S. 657, 62 S. Ct. 110, 86 L. Ed. 526, 1941 U.S. LEXIS 499 (1941).

56-1-409. Examination when deemed prudent or requested.

  1. The commissioner shall also make an examination of each insurance company licensed in this state whenever the commissioner deems it prudent to do so, or upon the request of five (5) or more of the stockholders or persons pecuniarily interested in the company, who shall make affidavit of their belief, with specifications of their reasons for the belief, that the company is in an unsound condition.
  2. For the purpose of ascertaining financial condition or legality of conduct, the commissioner may, for good cause, make an investigation and examination, independent of any other examination of an insurer or proposed insurer, of any accounts, records, files, documents, and transactions pertaining to the business of insurance. The investigatory and examination authority shall extend to:
    1. Any insurance agency, agent, general agent, surplus lines agent, insurance representative, or any person holding out to be an insurance agency, agent, general agent, surplus lines agent, or insurance representative;
    2. Any person having a contract under which that person enjoys by terms or in fact the exclusive or dominant right to manage or control an insurer;
    3. Any corporation, association, or person engaged in the business of adjusting losses, financing premiums, or furnishing insurance services in the form of administrative services only to self-insured groups;
    4. Any other individual, corporation, association, partnership, reciprocal exchange, interinsurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business of insurance; and
    5. Any employer that self-insures its workers' compensation liabilities pursuant to § 50-6-405(b) or a group of employers qualifying as self-insurers pursuant to § 50-6-405(c).

Acts 1895, ch. 160, § 4; Shan., § 3279; Code 1932, § 6093; Acts 1978, ch. 647, § 1; T.C.A. (orig. ed.), § 56-121; Acts 2004, ch. 962, § 38.

Compiler's Notes. Acts 2004, ch. 962, § 42 provided that:

  1. The general assembly recognizes that significant cost savings will result from the implementation of this bill. It is in the best interest of the citizens of Tennessee that the cost savings be passed to the entities that have paid faithfully workers' compensation premiums in order to ensure the economic well-being of their employees. It is the intent and purpose of the general assembly that workers' compensation premiums be adjusted downward within fifteen (15) months of July 1, 2004, to reflect the cost savings resulting from the provisions of the act. If a workers' compensation policy is subject to renewal during the fifteen (15) month period, adjustments to the policy may be made at that time.
  2. It is the intent of the general assembly that the savings of the act shall routinely be reflected in future filings through the advisory prospective loss cost filing system, pursuant to §§ 56-5-306(b) and 50-6-402. Nothing in this section shall be construed as amending or affecting the procedures for filing and approval of rates set forth in title 56, chapter 5.
    1. The department of insurance was at the time of the examination accredited under the National Association of Insurance Commissioners, Financial Regulation Standards and Accreditation Program; or
    2. The examination is performed:
      1. Under the supervision of a department of insurance so accredited; or
      2. With the participation of one (1) or more examiners who are employed by such an accredited state department of insurance and who, after a review of the examination work papers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their department of insurance.

56-1-410. Examination of foreign companies.

When the commissioner or the commissioner's deputy deems it prudent for the protection of policyholders in this state, the commissioner shall in like manner, visit and examine, or cause to be visited and examined by some competent person or persons the commissioner may appoint for that purpose, any foreign insurance company applying for admission to do business in this state.

In lieu of an examination under this section of any foreign or alien insurer licensed in this state, the commissioner may accept an examination report on the company as prepared by the department of insurance for the company's state of domicile or port-of-entry state until January 1, 1994. Thereafter, these reports may only be accepted if:

Acts 1895, ch. 160, § 4; Shan., § 3280; Code 1932, § 6094; T.C.A. (orig. ed.), § 56-122; Acts 1993, ch. 253, §§ 2, 3.

56-1-411. Extent of examination — Report — Hearing — Order — Penalty — Confidentiality of records.

  1. In the course of the examination, the commissioner, the commissioner's deputy, or the person appointed by the commissioner for the purpose of making the examination may examine:
    1. Any insurance company transacting, or being organized to transact, business in this state;
    2. Any corporation, association, or person engaged in or proposing to be engaged in the organization, promotion or solicitation of shares or capital contributions to, or aiding in the formation of, an insurance company;
    3. As an incident to the examination of the insurance company itself, any corporation, association, or person holding shares of capital stock of an insurance company for the purpose of controlling the management of the insurance company as voting trustee or otherwise;
    4. As an incident to the examination of the insurance company itself, any corporation, association, or person having a contract, written or oral, pertaining to the management or control of an insurance company as general agent, managing agent or attorney-in-fact;
    5. As an incident to the examination of the insurance company itself, any corporation, association, or person that has substantial control, directly or indirectly, over any insurance company doing business in this state whether by ownership of its stock or otherwise, or any corporation, association, or person owning stock in any such insurance company, which stock constitutes a substantial proportion of the stock of the insurance company;
    6. Any subsidiary or affiliate of any insurance company doing business in this state;
    7. Any licensed agent, broker or solicitor or any corporation, association, or person making application for a license as an agent, broker or solicitor; and
    8. Any corporation, association, or person engaged in the business of adjusting losses or financing premiums.
    1. Every company, corporation, association, or person being examined, its officers, directors and agents, shall provide to the commissioner, the commissioner's deputy, or the person appointed by the commissioner for the purpose of the examination, convenient and free access at its office to all books, records, securities, documents and any and all papers relating to the property, assets, business and affairs of the company. The officers, directors and agents of the company, corporation, association or person shall facilitate the examination and aid in the examination so far as it is in their power to do so.
    2. The commissioner, the commissioner's deputy, or the person appointed by the commissioner for the purpose of the examination, has the power to:
      1. Administer oaths and to examine under oath any person relative to the business of the company; and
      2. Appraise or cause to be appraised by competent appraisers appointed by the commissioner or such other person all property in which the company has or claims an interest or that is security in any form for the payment of any debt or obligation to the company.
    1. The commissioner, the commissioner's deputy, or the person appointed by the commissioner for the purpose of the examination, shall make a full and true report of the examination, which shall comprise only facts ascertained from the books, papers, records, securities or documents or other evidence obtained by investigation and examined by them or ascertained from the testimony of officers or agents or other persons examined under oath concerning the business, affairs, assets and obligations of the company. The report of examination shall be verified by the oath of the examiner in charge of the examination and shall be prima facie evidence in any action or proceeding in the name of the state against the company, its officers or agents upon the facts stated in the report.
    2. In the conduct of an examination, the criteria as set forth in the Examiners Handbook adopted by the National Association of Insurance Commissioners and the National Association of Insurance Commissioners Accounting Practices and Procedures Manuals that were in effect when the commissioner exercised discretion to make an examination under or to take other action permitted by this chapter shall be used. The commissioner may also employ other guidelines or procedures the commissioner deems appropriate.
    1. No later than sixty (60) days following completion of the examination, the examiner in charge shall file with the department a verified written report of examination under oath. Upon receipt of the verified report, the department shall transmit the report to the company examined, together with a notice that affords the company examined a reasonable opportunity of not more than thirty (30) days to make a written submission or rebuttal with respect to any matters contained in the examination report.
    2. Within thirty (30) days of the end of the period allowed for the receipt of written submissions or rebuttals, the commissioner shall fully consider and review the report, together with any written submissions or rebuttals and any relevant portions of the examiner's work papers and enter an order:
      1. Adopting the examination report as filed or with modification or corrections. If the examination report reveals that the company is operating in violation of any law, regulation or prior order of the commissioner, the commissioner may order the company to take any action the commissioner considers necessary and appropriate to cure the violation;
      2. Rejecting the examination report with directions to the examiners to reopen the examination for purposes of obtaining additional data, documentation or information, and refiling pursuant to subdivision (c)(2); or
      3. Calling for an investigatory hearing with no less than twenty (20) days' notice to the company for purposes of obtaining additional documentation, data, information and testimony.
    3. If the examination reveals that the company is operating in violation of any law, regulation or prior order, the commissioner, in the written order, may require the company to take any action the commissioner considers necessary or appropriate in accordance with the report of examination or the hearing, if any, on the report. That order shall be subject to judicial review in accordance with title 27, chapter 9.
    4. Nothing contained in this chapter shall prevent or be construed as prohibiting the commissioner from disclosing the content of an examination report, preliminary examination report or results, or any matter relating to the reports or results, to the department of insurance of this or any other state or country, or to law enforcement officials of this or any other state or agency of the federal government at any time, so long as the agency or office receiving the report or matters relating to the reports agrees in writing to hold it confidential and in a manner consistent with this section.
  2. Any company, corporation, or association that, or person who, violates or aids and abets any violation of a written order issued pursuant to this section shall be punished by a fine of not more than five thousand dollars ($5,000), which shall be sued for and recovered pursuant to § 56-1-802.
  3. All working papers, recorded information, documents and copies of working papers, recorded information and documents produced by, obtained by or disclosed to the commissioner or any other person in the course of an examination made under this chapter must be given confidential treatment and may not be made public by the commissioner or any other person, except to the extent provided in subsection (d). Access may also be granted to the National Association of Insurance Commissioners. The parties must agree in writing prior to receiving the information to provide to it the same confidential treatment as required by this section, unless the prior written consent of the company to which it pertains has been obtained.

Acts 1895, ch. 160, § 4; Shan., § 3281; Code 1932, § 6095; Acts 1968, ch. 463, § 1; T.C.A. (orig. ed.), § 56-123; Acts 1993, ch. 253, §§ 4-6; 1996, ch. 750, § 15.

Cross-References. Confidentiality of public records, § 10-7-504.

56-1-412. Failure to testify before commissioner — Obstruction of examination — Penalty.

Whoever, without justifiable cause, neglects, upon due summons, to appear and testify before the commissioner, the commissioner's deputy, or person appointed by the commissioner as provided, and whoever obstructs the commissioner, the commissioner's deputy or examiner in examining insurance companies commits a Class C misdemeanor.

Acts 1895, ch. 160, § 35; Shan., § 3320; Code 1932, § 6149; T.C.A. (orig. ed.), § 56-124; Acts 1989, ch. 591, § 113.

Cross-References. Penalty for Class C misdemeanor, § 40-35-111.

56-1-413. Expenses of examination — Payment by company examined.

    1. Any insurance company authorized to do business in this state and examined under the law shall pay the proper charges incurred in the examination, including the expenses of the commissioner or the commissioner's deputy, and the expenses and compensation of the commissioner's assistants employed in the examination.
    2. The compensation of the experts, actuaries and examiners designated by the commissioner for examining the books or business of insurance companies doing business in this state shall be fixed by the commissioner at a reasonable amount commensurate with usual compensation for like services.
  1. All persons engaging, assisting, or making the required examination under this chapter shall be regular state employees, and their entire expenses and compensation shall be paid only by the state as now provided for by law. Notwithstanding this subsection (b), the commissioner may contract, in accordance with applicable state contracting procedures, for qualified actuaries and financial examiners the commissioner deems necessary due to the unavailability of qualified regular state employees to conduct a particular examination; provided, that, with respect to financial examinations, the compensation and per diem allowances paid to the persons shall be fixed by the commissioner at a reasonable amount commensurate with usual compensation for like services.
  2. The full cost of the examination fixed by the commissioner shall be paid into the department for its use and benefit in meeting the expenses and compensation for the persons engaged in the examinations.

Acts 1895, ch. 160, § 4; Shan., § 3282; Acts 1921, ch. 30, § 1; Code 1932, § 6097; Acts 1951, ch. 103, § 1; 1965, ch. 263, § 1; impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-125; Acts 1991, ch. 142, § 9; 2000, ch. 642, § 1; 2005, ch. 251, § 1; 2017, ch. 354, § 6.

Amendments. The 2017 amendment substituted “be fixed by the commissioner at a reasonable amount commensurate with usual compensation for like services.” for “not exceed one hundred fifty percent (150%) of the compensation and per diem allowances set forth in the guidelines adopted by the National Association of Insurance Commissioners, unless the commissioner determines that a higher compensation rate is necessary, and the insurance company being examined agrees to pay a compensation rate that might exceed these allowances.” at the end of (b).

Effective Dates. Acts 2017, ch. 354, § 7. May 11, 2017.

Cross-References. Insurance fee reciprocity of treatment provisions inapplicable, § 56-4-218.

56-1-414. Impairment of capital stock of domestic insurance company.

When it appears to the commissioner that the capital stock of a domestic insurance company is impaired to the extent of twenty percent (20%) or more, the commissioner shall notify the company that its capital is legally subject to be made good; and, if the company does not, within sixty (60) days after the notice, satisfy the commissioner that it has fully repaired its capital, or reduced its capital as provided by law, the commissioner shall institute proceedings against it.

Acts 1895, ch. 160, § 6; Shan., § 3286; Code 1932, § 6101; T.C.A. (orig. ed.), § 56-126.

56-1-415. Issuance of policies by domestic life insurance companies forbidden when assets are insufficient.

When the actual funds of a domestic life insurance company, exclusive of its capital, are not of a net cash value equal to its liabilities, including the net value of its policies, computed by the rule of valuation established by part 9 of this chapter, the commissioner shall notify the company and its agents to issue no new policies until its funds become equal to its liabilities.

Acts 1895, ch. 160, § 7; Shan., § 3287; Code 1932, § 6102; T.C.A. (orig. ed.), § 56-127; Acts 2013, ch. 260, § 2.

56-1-416. Revocation or suspension of certificate of authority.

  1. The commissioner shall revoke or suspend all certificates of authority granted to the company or its agents and cause notice of revocation or suspension to be published in one (1) or more newspapers of general circulation, if the commissioner is of the opinion, upon examination or other evidence, that:
    1. A foreign insurance company is:
      1. In an unsound condition; or
      2. If a life insurance company, has actual funds, exclusive of its capital, less than its liabilities; or
    2. A foreign insurance company has:
      1. Failed to comply with the law; or
      2. Its officers or agents have:
        1. Refused to submit to examination;
        2. Refused to perform any legal obligations in relation to examinations; or
        3. Failed to pay any final judgment against the company recovered by a Tennessee citizen.
  2. No new business shall be done by a company or its agents under suspension or revocation while the default or disability continues, nor until its authority to do business is restored by the commissioner.

Acts 1895, ch. 160, § 5; Shan., § 3283; Code 1932, § 6098; T.C.A. (orig. ed.), § 56-128.

Cross-References. Foreign fire, fire marine, or marine insurance company, § 56-2-410.

Foreign fraternal benefit society, revocation of license, § 56-25-607.

Life insurance companies, terms of policies misleading misrepresentation, §§ 56-7-305, 56-7-306, 56-7-2310.

Revocation of authority of foreign companies, § 56-2-407.

NOTES TO DECISIONS

1. Exercise of Discretion by Commissioner.

The powers conferred by statute upon the commissioner, in granting, refusing, and revoking licenses, are discretionary and judicial, and his decision of any question that lies within the scope of his authority is final and conclusive and will not be reviewed by the courts; but his determination that any matter lies within the scope of his statutory authority is subject to review by the courts, and, when erroneous, will be vacated or arrested. North British & Mercantile Co. v. Craig, 106 Tenn. 621, 62 S.W. 155, 1900 Tenn. LEXIS 197 (1901); State ex rel. Cates v. Standard Oil Co., 120 Tenn. 86, 110 S.W. 565, 1907 Tenn. LEXIS 41 (1907), aff'd, Standard Oil Co. v. Tennessee, 217 U.S. 413, 30 S. Ct. 543, 54 L. Ed. 817, 1910 U.S. LEXIS 1967 (1910), aff'd, Standard Oil Co. v. Tennessee, 217 U.S. 413, 30 S. Ct. 543, 54 L. Ed. 817, 1910 U.S. LEXIS 1967 (1910).

2. Revocation of License.

Authority to revoke the license of a foreign insurance company for its violation of or noncompliance with “the law,” or “any provision of law obligatory upon it,” gives right to revocation not only for its violation of or noncompliance with the requirements of the particular statute in which such terms are used, but also for its violation of or noncompliance with the requirements of all the statutes applicable to such companies, and the broader obligations of the common law that go to the general integrity of their business and affect all policyholders in the same way. North British & Mercantile Co. v. Craig, 106 Tenn. 621, 62 S.W. 155, 1900 Tenn. LEXIS 197 (1901).

Collateral References.

Insurance agent's license, statutory provision for cancellation or suspension or refusal to renew as involving unconstitutional delegation of legislative power to insurance commissioner. 154 A.L.R. 1148.

Statute relating to closing of bank and assessment of stockholders as subject to constitutional objection of conferring judicial power upon administrative or executive officers. 78 A.L.R. 774.

Validity of statute or ordinance vesting discretion in public officials without prescribing a rule of action. 12 A.L.R. 1435, 54 A.L.R. 1104, 92 A.L.R. 400.

56-1-417. Notice required for revocation or suspension of certificate of authority.

Unless the ground for revocation or suspension relates only to the financial condition or soundness of the company or to a deficiency in its assets, the commissioner shall notify the company no less than ten (10) days before revoking its authority to do business in this state, and the commissioner shall specify in the notice the particulars of the supposed violation.

Acts 1895, ch. 160, § 5; Shan., § 3284; Code 1932, § 6099; T.C.A. (orig. ed.), § 56-129.

56-1-418. Calculation of disability benefit reserves.

The commissioner shall annually cause to be made, or require the insurer to make, calculations of policy and claim reserves for accident and health policies providing disability benefits as defined in § 56-2-201 on the basis of regulations the commissioner prescribes from time to time regarding minimum reserve standards and tables of mortality, morbidity, interest or other contingencies to be used to compute the reserves. From July 1, 1995, until the date of promulgation of rules and regulations, all calculations with respect to policy and claim reserves for accident and health policies providing disability benefits shall be made at a rate of interest not exceeding four and one half percent (4.5%) per annum.

Acts 1976, ch. 507, § 1; T.C.A., § 56-144; Acts 1995, ch. 363, § 17.

56-1-419. Statement of actuarial opinion — Summary — Report and work papers — Liability for errors and omissions.

  1. Statement of Actuarial Opinion.   On or before March 1, 2012, and annually every year thereafter, every property and casualty insurance company doing business in this state, unless otherwise exempted by the domiciliary commissioner, shall submit the opinion of an appointed actuary entitled “Statement of Actuarial Opinion”. This opinion shall be filed with the appropriate National Association of Insurance Commissioners (NAIC) property and casualty annual statement instructions and shall cover the activity of the prior calendar year.
  2. Actuarial Opinion Summary.
    1. Every property and casualty insurance company domiciled in this state that is required to submit a statement of actuarial opinion shall annually submit an actuarial opinion summary, written by the company's appointed actuary. This actuarial opinion summary shall be filed in accordance with the appropriate NAIC property and casualty annual statement instructions and shall be considered as a document supporting the actuarial opinion required in subsection (a).
    2. A company licensed but not domiciled in this state shall provide the actuarial opinion summary upon request.
  3. Actuarial Report and Work Papers.
    1. An actuarial report and underlying work papers as required by the appropriate NAIC property and casualty annual statement instructions shall be prepared to support each actuarial opinion.
    2. If the insurance company fails to provide a supporting actuarial report and/or work papers at the request of the commissioner or the commissioner determines that the supporting actuarial report or work papers provided by the insurance company is otherwise unacceptable to the commissioner, the commissioner may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting actuarial report or work papers.
  4. The appointed actuary shall not be liable for damages to any person, other than the insurance company and the commissioner, for any act, error, omission, decision or conduct with respect to the actuary's opinion, except in cases of fraud or willful misconduct on the part of the appointed actuary.

Acts 2010, ch. 892, § 2.

Compiler's Notes. Acts 2010, ch. 892, § 1 provided that the act shall be known and may be cited as the “Property and Casualty Actuarial Opinion Law.”

56-1-420. Statement of actuarial opinion provided with annual statement and treated as public document — Materials provided in support of opinion that are confidential and privileged — Release of documents — Testimony — Powers of commissioner — Waiver of privilege or confidentiality.

  1. The statement of actuarial opinion, submitted pursuant to § 56-1-419, shall be provided with the annual statement in accordance with the appropriate National Association of Insurance Commissioners (NAIC) property and casualty annual statement instructions and shall be treated as a public document.
    1. Notwithstanding § 10-7-503 or any other law to the contrary, documents, materials or other information in the possession or control of the department of commerce and insurance that are considered an actuarial report, work papers or actuarial opinion summary provided in support of the opinion, and any other material provided by the company to the commissioner in connection with the actuarial report, work papers or actuarial opinion summary, shall be confidential by law and privileged, shall not be subject to open records requests or sunshine laws, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action.
    2. This subsection (b) shall not be construed to limit the commissioner's authority to release the documents to the Actuarial Board for Counseling and Discipline (ABCD) so long as the material is required for the purpose of professional disciplinary proceedings and that the ABCD establishes procedures satisfactory to the commissioner for preserving the confidentiality of the documents, nor shall this section be construed to limit the commissioner's authority to use the documents, materials or other information in furtherance of any regulatory or legal action brought as part of the commissioner's official duties.
  2. Neither the commissioner nor any person who received documents, materials or other information while acting under the authority of the commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to subsection (b).
  3. In order to assist in the performance of the commissioner's duties, the commissioner:
    1. May share documents, materials or other information, including the confidential and privileged documents, materials or information subject to subsection (b) with other state, federal and international regulatory agencies, with NAIC and its affiliates and subsidiaries, and with state, federal and international law enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information and has the legal authority to maintain confidentiality;
    2. May receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information; and
    3. May enter into agreements governing sharing and use of information consistent with subsections (b)-(d).
  4. No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in subsection (d).

Acts 2010, ch. 892, § 4.

Compiler's Notes. Acts 2010, ch. 892, § 1 provided that the act shall be known and may be cited as the “Property and Casualty Actuarial Opinion Law.”

Cross-References. Confidentiality of public records, § 10-7-504.

Part 5
Annual Statements

56-1-501. Annual statements to commissioner — Form and contents — Promulgation of rules by commissioner.

  1. Upon request, the commissioner shall in December each year furnish to domestic insurance companies two (2) blanks in the form adopted by rule for their annual statement.
  2. All companies authorized to do business under chapters 2, 14-16, 18-21, 23, 24, 26-31 and 35 of this title shall annually, on or before March 1, file in the office of the commissioner an annual statement in the form adopted for use by companies, by class of business authorized, which statement shall exhibit its financial condition on December 31 of the previous year, and its business of that year, which statement shall be completed and filed in accordance with annual statement instructions established by the commissioner.
  3. The assets and liabilities shall be computed and allowed in the statement in accordance with this chapter and chapters 2, 3, 14-16, 18-21, 23, 24, 26-31 and 35 of this title, as applicable to the company making the filing.
  4. The commissioner is authorized to promulgate rules to require that the statement contains the opinion by a qualified actuary or loss reserve specialist on all policy claim reserves, and loss adjustment expense reserves for all insurers on an annual basis. The rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
  5. The statement shall be subscribed and sworn to by the president and secretary, or in their absence, by two (2) of the company's principal officers.
  6. The annual statement of a company of a foreign country shall embrace only its business and condition in the United States, and shall be subscribed and sworn to by its resident manager or principal representative in charge of its United States business.
  7. Financial statements or information required by this part shall be prepared in accordance with the National Association of Insurance Commissioners Accounting Practices and Procedures Manual in effect for the period covered by the report.
    1. The commissioner is authorized to promulgate rules to require that all companies authorized to do business in this state file audited financial reports by independent certified public accountants annually, on or before June 1 for the year ended December 31 immediately preceding.
    2. Any determination by the independent certified public accountant that an insurer has materially misstated its financial condition as reported to the commissioner, or that an insurer does not meet the minimum capital and surplus requirements of this title, shall be reported as set out in the rules promulgated pursuant to this section. No independent certified public accountant shall be liable in any manner to any person for any statement made in connection with this report of adverse financial condition if such statement is made in good faith in compliance with this section and the rules promulgated pursuant to this section.
  8. The commissioner is authorized to promulgate by rule the manner in which filing of annual statements and payment of annual filing fees may be filed with the commissioner. The rules may include the acceptance of electronic filings and electronic payments. The commissioner is also authorized to promulgate rules that provide for a convenience fee to cover the cost of accepting electronic filings and electronic payments. Any fee set by rule under the authority of this subsection (i) may be assessed in addition to the fee or fees assessed for the cost of accepting filings or payments. In no event shall the convenience fee exceed the actual costs incurred by the department in accepting electronic filings or electronic payments.

Acts 1895, ch. 160, § 16; Shan., § 3299; Acts 1925, ch. 21, § 1; Code 1932, § 6115; T.C.A. (orig. ed.), § 56-131; Acts 1983, ch. 72, § 1; 1991, ch. 142, § 3; 1993, ch. 253, §§ 7, 23, 24; 1995, ch. 363, § 8; 2006, ch. 1018, § 1; 2010, ch. 892, § 5.

Compiler's Notes. Acts 2006, ch. 1018, § 6 provided that the commissioner is authorized to promulgate rules and regulations to effectuate the purposes of the act. All such rules and regulations shall be promulgated in accordance with the provisions of the Uniform Administrative Procedures Act, complied in title 4, chapter 5.

Acts 2010, ch. 892, § 1 provided that the act shall be known and may be cited as the “Property and Casualty Actuarial Opinion Law.”

Cross-References. Fraternal benefit societies, § 56-25-202.

Report to commissioner of revenue upon approval of proof of death, § 67-8-424.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

Collateral References.

Liability of independent accountant to investors or shareholders. 48 A.L.R.5th 389.

56-1-502. Forfeiture for failure to file statement — Suspension of authority to do new business.

Any insurance company that neglects to make and file its annual statement in the form and within the time provided by § 56-1-501 shall forfeit one hundred dollars ($100) for each day neglected, and, upon notice by the commissioner to that effect, its authority to do new business shall cease while the default continues.

Acts 1895, ch. 160, § 34; Shan., § 3318; Code 1932, § 6147; T.C.A. (orig. ed.), § 56-132.

56-1-503. False statement — Penalty — Perjury.

  1. For willfully making a false annual or other statement it is required by law to make, an insurance company, and persons making oath to or subscribing to the statement, shall be severally punished by a fine of not less than five hundred dollars ($500) nor more than one thousand dollars ($1,000).
  2. Any person making oath to the false statement commits perjury.

Acts 1895, ch. 160, § 34; Shan., § 3319; Code 1932, § 6148; T.C.A. (orig. ed.), § 56-133.

Cross-References. Perjury, title 39, chapter 16, part 7.

Part 6
Records and Documents

56-1-601. Duty of commissioner to keep records of proceedings and examinations — Commissioner's report.

  1. The commissioner shall preserve in a permanent form a record of the commissioner's proceedings, including a concise statement of the result of official examinations of insurance companies.
  2. The commissioner shall, annually, and as early as consistent with full and accurate preparation, make a report to the governor of all official transactions, and shall include in the report a statement of the receipts and expenditures of the department for the preceding year, an exhibit of the financial condition and business transactions of the several insurance companies as disclosed by their annual statements, abstracts of which statements shall appear in the report, and other information and comments in relation to insurance and the public interest in insurance the commissioner deems fit to communicate.

Acts 1895, ch. 160, § 17; Shan., § 3300; mod. Code 1932, § 6116; T.C.A. (orig. ed.), § 56-134.

Cross-References. Fire prevention activities, annual report to governor, § 68-102-133.

56-1-602. Records — Inspection by public.

  1. The records of the department shall, at all times, be open to the inspection of the public, subject to rules made by the commissioner for their safekeeping, free from any charge whatever.
  2. The commissioner shall, on demand, furnish certified copies of any paper, report, or document on file in the commissioner's office to any person requesting them, upon payment of the fee allowed by law.

Acts 1873, ch. 58, § 12; Shan., § 3342; mod. Code 1932, § 6167; T.C.A. (orig. ed.), § 56-135.

56-1-603. Seal of department.

The commissioner, with the approval of the governor, shall devise a seal, with suitable inscription, for the department, a description of which, with a certificate of approval by the governor, together with an impression of the seal, shall be filed in the office of the secretary of state, and may be renewed whenever necessary.

Acts 1873, ch. 58, § 13; Shan., § 3343; mod. Code 1932, § 6168; T.C.A. (orig. ed.), § 56-136.

56-1-604. Documents to be recorded by commissioner or the commissioner's chief deputy — Certified copies of records to be evidence.

Every certificate, assignment, or conveyance executed by the commissioner or the commissioner's chief deputy, relating to the business of insurance companies, in pursuance of authority conferred by law, and sealed with the seal of office, shall be recorded in the proper recording office in the same manner and with the same effect as a deed regularly acknowledged or proved before an officer authorized by law to take the proof or acknowledgment of deeds, and all copies of papers in the office of the department, certified by the commissioner or the chief deputy, and authenticated by the seal, shall in all cases be evidence equally and in like manner with the original.

Acts 1873, ch. 58, § 13; Shan., § 3344; Code 1932, § 6169; modified; Acts 1957, ch. 7, § 1; T.C.A. (orig. ed.), § 56-137.

Collateral References.

Corporations, proving authority of foreign corporation to do business in the state. 2 A.L.R. 1235.

Meaning of “duplicate.” 24 A.L.R. 1209.

Public auditor's certified copy. 52 A.L.R. 1267.

Part 7
Rules and Regulations [Repealed]

56-1-701. [Repealed.]

Acts 1970, ch. 503, § 1; impl. am. Acts 1971, ch. 137, § 2; T.C.A., § 56-141; repealed by Acts 2018, ch. 873, § 2, effective May 3, 2018.

Compiler's Notes.  Former part 7, §§ 56-1-701, 56-1-702, concerned rules and regulations relating to the business of life, accident and health, credit life and credit accident and health insurance.

56-1-702. [Repealed.]

Acts 1970, ch. 503, § 2; impl. am. Acts 1974, ch. 725, §§ 1, 22; T.C.A., § 56-142; repealed by Acts 2018, ch. 873, § 2, effective May 3, 2018.

Compiler's Notes.  Former part 7, §§ 56-1-701, 56-1-702, concerned rules and regulations relating to the business of life, accident and health, credit life and credit accident and health insurance.

Part 8
Penalties

56-1-801. Violation of insurance laws — General penalty.

A violation of this chapter and chapters 2-4, 7, 11 and 32 of this title, the penalty of which is not specifically provided, is a Class C misdemeanor.

Acts 1895, ch. 160, § 36; Shan., § 3321; Code 1932, § 6150; modified; T.C.A. (orig. ed.), § 56-139; Acts 1989, ch. 591, § 113; 2000, ch. 708, § 9.

Cross-References. Penalty for Class C misdemeanor, § 40-35-111.

56-1-802. Recovery of penalties — Imprisonment for failure to pay penalties.

  1. Every penalty fixed in this title, unless otherwise provided for, shall be sued for and recovered in the name of the state by the district attorney general of the district in which the delinquency occurs, and shall be paid into the state treasury.
  2. Nonpayment of the penalties is a Class C misdemeanor.

Acts 1895, ch. 160, § 37; Shan., § 3322; Code 1932, § 6151; modified; T.C.A. (orig. ed), § 56-140; Acts 1989, ch. 591, § 113.

Cross-References. Penalty for Class C misdemeanor, § 40-35-111.

Part 9
Standard Valuation Law

56-1-901. Short title and part definitions.

  1. This part shall be known and may be cited as the “Standard Valuation Law.”
  2. For purposes of this part, the following definitions shall apply on or after the operative date of the valuation manual:
    1. “Accident and health insurance contracts” means contracts that incorporate morbidity risk and provide protection against economic loss resulting from accident, sickness or medical conditions and as may be specified in the valuation manual;
    2. “Appointed actuary” means a qualified actuary who is appointed in accordance with the valuation manual to prepare the actuarial opinion required in § 56-1-903;
    3. “Company” means an entity that:
      1. Has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this state and has at least one (1) such policy in force or on claim; or
      2. Has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance or deposit-type contracts in this state;
    4. “Deposit-type contract” means contracts that do not incorporate mortality or morbidity risks, and as may be specified in the valuation manual;
    5. “Life insurance” means contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the valuation manual;
    6. “NAIC” means the National Association of Insurance Commissioners;
    7. “Policyholder behavior” means any action a policyholder, contract holder or any other person with the right to elect options, such as a certificate holder, may take under a policy or contract subject to this part including, but not limited to, lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization or benefit elections prescribed by the policy or contract but excluding events of mortality or morbidity that result in benefits prescribed in their essential aspects by the terms of the policy or contract;
    8. “Principle-based valuation” means a reserve valuation that uses one (1) or more methods or one (1) or more assumptions determined by the insurer and is required to comply with § 56-1-915 as specified in the valuation manual;
    9. “Qualified actuary” means an individual who is qualified to sign the applicable statement of actuarial opinion in accordance with the American Academy of Actuaries' qualification standards for actuaries signing such statements and who meets the requirements specified in the valuation manual;
    10. “Tail risk” means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude; and
    11. “Valuation manual” means the manual of valuation instructions adopted by the NAIC as specified in this part or as subsequently amended.

Acts 2013, ch. 260, § 3.

56-1-902. Reserve valuation.

  1. For policies and contracts issued prior to the operative date of the valuation manual:
    1. The commissioner shall annually value, or cause to be valued, the reserve liabilities (reserves) for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in this state issued on or after January 1, 1962, and prior to the operative date of the valuation manual. In calculating reserves, the commissioner may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves required of a foreign or alien company, the commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this part.
    2. Sections 56-1-904 — 56-1-913 shall apply to all policies and contracts, as appropriate, subject to this part issued on or after January 1, 1962, and prior to the operative date of the valuation manual and the provisions set forth in §§ 56-1-914 and 56-1-915 shall not apply to any such policies and contracts.
    3. The minimum standard for the valuation of policies and contracts issued prior to January 1, 1962, shall be that provided by the laws in effect immediately prior to that date.
  2. For policies and contracts issued on or after the operative date of the valuation manual:
    1. The commissioner shall annually value, or cause to be valued, the reserves for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts, and deposit-type contracts of every company issued on or after the operative date of the valuation manual. In lieu of the valuation of the reserves required of a foreign or alien company, the commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this part; and
    2. Sections 56-1-914 and 56-1-915 shall apply to all policies and contracts issued on or after the operative date of the valuation manual.

Acts 2013, ch. 260, § 3.

56-1-903. Actuarial opinion of reserves.

  1. For an actuarial opinion prior to the operative date of the valuation manual:
    1. Every life insurance company doing business in this state shall annually submit the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the commissioner by regulation are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts and comply with applicable laws of this state. The commissioner shall define by regulation the specifics of this opinion and add any other items deemed to be necessary to its scope;
    2. For actuarial analysis of reserves and assets supporting reserves:
      1. Every life insurance company, except as exempted by regulation, shall also annually include in the opinion required by subdivision (a)(1), an opinion of the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the commissioner by regulation, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts, including, but not limited to, the benefits under, and expenses associated with, the policies and contracts;
      2. The commissioner may provide by regulation for a transition period for establishing any higher reserves that the qualified actuary may deem necessary in order to render the opinion required by this section;
    3. Each opinion required by subdivision (a)(2) shall be governed by the following provisions:
      1. A memorandum, in form and substance acceptable to the commissioner as specified by regulation, shall be prepared to support each actuarial opinion;
      2. If the insurance company fails to provide a supporting memorandum at the request of the commissioner within a period specified by regulation or the commissioner determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by regulations promulgated by the commissioner or is otherwise unacceptable to the commissioner, the commissioner may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the commissioner;
    4. Every opinion required by this subsection (a) shall be governed by the following provisions:
      1. The opinion shall be submitted with the annual statement reflecting the valuation of such reserve liabilities for each year ending on or after December 31, 1995;
      2. The opinion shall apply to all business in force including individual and group health insurance plans, in form and substance acceptable to the commissioner as specified by regulation;
      3. The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board and on such additional standards as the commissioner prescribes by regulation;
      4. In the case of an opinion required to be submitted by a foreign or alien company, the commissioner may accept the opinion filed by that company with the insurance supervisory official of another state if the commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state;
      5. For purposes of this section, “qualified actuary” means a member in good standing of the American Academy of Actuaries who meets the requirements set forth in the regulation;
      6. Except in cases of fraud or willful misconduct, the qualified actuary shall not be liable for damages to any person, other than the insurance company and the commissioner, for any act, error, omission, decision or conduct with respect to the actuary's opinion;
      7. Disciplinary action by the commissioner against the company or the qualified actuary shall be defined in regulations promulgated by the commissioner;
      8. Except as provided in subdivisions (a)(4)(L)-(N), documents, materials or other information in the possession or control of the department that are a memorandum in support of the opinion, and any other material provided by the company to the commissioner in connection with the memorandum, shall be confidential by law and privileged, shall not be subject to § 10-7-501 or § 56-1-602, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. However, the commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner's official duties;
      9. Neither the commissioner nor any person who received documents, materials or other information while acting under the authority of the commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, materials or information subject to subdivision (a)(4)(H);
      10. In order to assist in the performance of the commissioner's duties, the commissioner may:
        1. Share documents, materials or other information, including the confidential and privileged documents, materials or information subject to subdivision (a)(4)(H) with other state, federal and international regulatory agencies, with the NAIC and its affiliates and subsidiaries, and with state, federal and international law enforcement authorities; provided, that the recipient agrees to maintain the confidentiality and privileged status of the document, material or other information;
        2. Receive documents, materials or information, including otherwise confidential and privileged documents, materials or information, from the NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or information; and
        3. Enter into agreements governing sharing and use of information consistent with subdivisions (a)(4)(H)-(J);
      11. No waiver of any applicable privilege or claim of confidentiality in the documents, materials or information shall occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in subdivision (a)(4)(J);
      12. A memorandum in support of the opinion, and any other material provided by the company to the commissioner in connection with the memorandum, may be subject to subpoena for the purpose of defending an action seeking damages from the actuary submitting the memorandum by reason of an action required by this section or by regulation;
      13. The memorandum or other material may otherwise be released by the commissioner with the written consent of the company or to the American Academy of Actuaries upon request stating that the memorandum or other material is required for the purpose of professional disciplinary proceedings and setting forth procedures satisfactory to the commissioner for preserving the confidentiality of the memorandum or other material; and
      14. Once any portion of the confidential memorandum is cited by the company in its marketing or is cited before a governmental agency other than a state insurance department or is released by the company to the news media, all portions of the confidential memorandum shall be no longer confidential.
  2. For an actuarial opinion of reserves after the operative date of the valuation manual:
    1. Every company with outstanding life insurance contracts, accident and health insurance contracts or deposit-type contracts in this state and subject to regulation by the commissioner shall annually submit the opinion of the appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts and comply with applicable laws of this state. The valuation manual will prescribe the specifics of this opinion including any items deemed to be necessary to its scope;
    2. For actuarial analysis of reserves and assets supporting reserves, every company with outstanding life insurance contracts, accident and health insurance contracts or deposit-type contracts in this state and subject to regulation by the commissioner, except as exempted in the valuation manual, shall also annually include in the opinion required by subdivision (b)(1), an opinion of the same appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified in the valuation manual, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts, including, but not limited to, the benefits under, and expenses associated with, the policies and contracts;
    3. Each opinion required by subdivision (b)(2) shall be governed by the following provisions:
      1. A memorandum, in form and substance as specified in the valuation manual, and acceptable to the commissioner, shall be prepared to support each actuarial opinion; and
      2. If the insurance company fails to provide a supporting memorandum at the request of the commissioner within a period specified in the valuation manual or the commissioner determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the valuation manual or is otherwise unacceptable to the commissioner, the commissioner may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the commissioner;
    4. Every opinion shall be governed by the following provisions:
      1. The opinion shall be in form and substance as specified in the valuation manual and acceptable to the commissioner;
      2. The opinion shall be submitted with the annual statement reflecting the valuation of such reserve liabilities for each year ending on or after the operative date of the valuation manual;
      3. The opinion shall apply to all policies and contracts subject to this subsection (b), plus other actuarial liabilities as may be specified in the valuation manual;
      4. The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board or its successor, and on such additional standards as may be prescribed in the valuation manual;
      5. In the case of an opinion required to be submitted by a foreign or alien company, the commissioner may accept the opinion filed by that company with the insurance supervisory official of another state if the commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state;
      6. Except in cases of fraud or willful misconduct, the appointed actuary shall not be liable for damages to any person, other than the insurance company and the commissioner for any act, error, omission, decision or conduct with respect to the appointed actuary's opinion; and
      7. Disciplinary action by the commissioner against the company or the appointed actuary shall be defined in regulations promulgated by the commissioner.

Acts 2013, ch. 260, § 3.

Cross-References. Confidentiality of public records, § 10-7-504.

56-1-904. Computation of minimum standard.

Except as provided in §§ 56-1-905, 56-1-906 and 56-1-913, the minimum standard for the valuation of policies and contracts issued prior to January 1, 1962, shall be that provided by the laws in effect immediately prior to that date. Except as otherwise provided in §§ 56-1-905, 56-1-906 and 56-1-913, the minimum standard for the valuation of all policies and contracts issued on or after January 1, 1962, shall be the commissioner's reserve valuation methods defined in §§ 56-1-907, 56-1-908, 56-1-911 and 56-1-913, three and one half percent (3.5%) interest, or in the case of life insurance policies and contracts, other than annuity and pure endowment contracts, issued on or after May 6, 1973, four percent (4%) interest for policies issued prior to March 13, 1978, five and one half percent (5.5%) interest for single premium life insurance policies and four and one half percent (4.5%) interest for all other policies issued on or after March 13, 1978, and the following tables:

  1. For ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in the policies: the Commissioners 1941 Standard Ordinary Mortality Table for policies issued prior to the operative date of § 56-7-401(f), the Commissioners 1958 Standard Ordinary Mortality Table for policies issued on or after the operative date of § 56-7-401(f) and prior to the operative date of § 56-7-401(h); provided, that, for any category of policies issued on female risks, all modified net premiums and present values referred to in this part may be calculated according to an age not more than six (6) years younger than the actual age of the insured; and for policies issued on or after the operative date of § 56-7-401(h):
    1. The Commissioners 1980 Standard Ordinary Mortality Table;
    2. At the election of the company for any one (1) or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors; or
    3. Any ordinary mortality table, adopted after 1980 by the NAIC, which is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for such policies;
  2. For industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in the policies: the 1941 Standard Industrial Mortality Table for policies issued prior to the operative date of § 56-7-401(g), and for policies issued on or after the operative date of § 56-7-401(g), the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table adopted after 1980 by the NAIC that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for the policies;
  3. For individual annuity and pure endowment contracts, excluding any disability and accidental death benefits in the policies: the 1937 Standard Annuity Mortality Table, or at the option of the company, the Annuity Mortality Table for 1949, Ultimate or any modification of either of these tables approved by the commissioner;
  4. For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in the policies: the Group Annuity Mortality Table for 1951, a modification of the table approved by the commissioner, or at the option of the company, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts;
  5. For total and permanent disability benefits in or supplementary to ordinary policies or contracts: for policies or contracts issued on or after January 1, 1966, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit or any tables of disablement rates and termination rates adopted after 1980 by the NAIC, that are approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for those policies; for policies or contracts issued on or after January 1, 1961, and prior to January 1, 1966, either those tables or, at the option of the company, the Class (3) Disability Table (1926); and for policies issued prior to January 1, 1961, the Class (3) Disability Table (1926). Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance policies;
  6. For accidental death benefits in or supplementary to policies issued on or after January 1, 1966: the 1959 Accidental Death Benefits Table or any accidental death benefits table adopted after 1980 by the NAIC that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for those policies, for policies issued on or after January 1, 1961, and prior to January 1, 1966, either that table or, at the option of the company, the Inter-Company Double Indemnity Mortality Table; and for policies issued prior to January 1, 1961, the Inter-Company Double Indemnity Mortality Table. Either table shall be combined with a mortality table for calculating the reserves for life insurance policies; and
  7. For group life insurance, life insurance issued on the substandard basis and other special benefits: tables approved by the commissioner.

Acts 2013, ch. 260, § 3.

56-1-905. Computation of minimum standard for annuities and pure endowment contracts.

  1. Except as provided in § 56-1-906, the minimum standard of valuation for individual annuity and pure endowment contracts issued on or after the operative date of this section and for annuities and pure endowments purchased on or after the operative date under group annuity and pure endowment contracts, shall be the commissioner's reserve valuation methods defined in §§ 56-1-907 and 56-1-908 and the following tables and interest rates:
    1. For individual annuity and pure endowment contracts issued prior to March 13, 1978, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table, or any modification of this table approved by the commissioner, and six percent (6%) interest for single premium immediate annuity contracts and four percent (4%) interest for all other individual annuity and pure endowment contracts;
    2. For individual single premium immediate annuity contracts issued on or after March 13, 1978, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the NAIC that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for these contracts, or any modification of these tables approved by the commissioner, and seven and one half percent (7.5%) interest;
    3. For individual annuity and pure endowment contracts issued on or after March 13, 1978, other than single premium immediate annuity contracts, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the NAIC that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for those contracts, or any modification of these tables approved by the commissioner, and five and one half percent (5.5%) interest for single premium deferred annuity and pure endowment contracts and four and one half percent (4.5%) interest for all other individual annuity and pure endowment contracts;
    4. For annuities and pure endowments purchased prior to March 13, 1978, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table or any modification of this table approved by the commissioner, and six percent (6%) interest; and
    5. For annuities and pure endowments purchased on or after March 13, 1978, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table, or any group annuity mortality table adopted after 1980 by the NAIC that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for annuities and pure endowments, or any modification of these tables approved by the commissioner, and seven and one half percent (7.5%) interest.
  2. After May 6, 1973, any company may file with the commissioner a written notice of its election to comply with this section after a specified date before January 1, 1979, which shall be the operative date of this section for that company. If a company makes no election, the operative date of this section for that company shall be January 1, 1979.

Acts 2013, ch. 260, § 3.

56-1-906. Calendar year statutory valuation interest rates.

  1. The interest rates used in determining the minimum standard for the valuation of the following shall be the calendar year statutory valuation interest rates as defined in this section:
    1. Life insurance policies issued in a particular calendar year, on or after the operative date of § 56-7-401(h);
    2. Individual annuity and pure endowment contracts issued in a particular calendar year, on or after January 1, 1983;
    3. Annuities and pure endowments purchased in a particular calendar year, on or after January 1, 1983, under group annuity and pure endowment contracts; and
    4. The net increase, if any, in a particular calendar year after January 1, 1983, in amounts held under guaranteed interest contracts.
  2. For calendar year statutory valuation interest rates:
    1. The calendar year statutory valuation interest rates, I , shall be determined as follows and the results rounded to the nearer one-quarter of one percent (0.25%), where R1 is the lesser of R and 0.09, R2 is the greater of R and 0.09, R is the reference interest rate defined in this section, and W is the weighting factor defined in this section:
      1. For life insurance:

        (Click here to view Equation)

      2. For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options:

        (Click here to view Equation)

      3. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on an issue year basis, except as stated in subdivision (b)(1)(B), the formula for life insurance in subdivision (b)(1)(A) shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of ten (10) years and the formula for single premium immediate annuities in subdivision (b)(1)(B) shall apply to annuities and guaranteed interest contracts with guarantee duration of ten (10) years or less;
      4. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities in subdivision (b)(1)(B) shall apply;
      5. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities in subdivision (b)(1)(B) shall apply;
      1. However, if the calendar year statutory valuation interest rate for a life insurance policy issued in any calendar year determined without reference to this subdivision (b)(2)(A) differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one half of one percent (0.5%), the calendar year statutory valuation interest rate for the life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year;
      2. For purposes of applying subdivision (b)(2)(A), the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 1980, using the reference interest rate defined in 1979, and shall be determined for each subsequent calendar year regardless of when § 56-7-401(h) becomes operative;
  3. The weighting factors referred to in the formulas described in subsection (b) are given in the following tables:
      1. Weighting factors for life insurance:

        Guarantee

        Duration Weighting

        Years   Factors

        10 or less  0.50

        More than 10, but not more than 20    0.45

        More than 20        0.35

      2. For life insurance, the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates or nonforfeiture values or both which are guaranteed in the original policy;
    1. Weighting factor for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options: 0.80;
    2. Weighting factors for other annuities and for guaranteed interest contracts, except as provided in subdivision (c)(2), shall be as specified in subdivisions (c)(3)(A), (B) and (C), according to the rules and definitions in subdivisions (c)(3)(D), (E) and (F):
      1. For annuities and guaranteed interest contracts valued on an issue year basis:

        Guarantee   Weighting Factor

        A     B     C

        Duration     For Plan Type

        5 or less: 0.80    0.60    0.50

        More than 5,

        but not more than 10:   0.75    0.60    0.50

        More than 10,

        but not more than 20:   0.65    0.50   0.45

        More than 20:      0.45    0.35  0.35

      2. For annuities and guaranteed interest contracts valued on a change in fund basis, the factors in subdivision (c)(3)(A) increased by:

        For Plan Type

        A     B     C

        0.15    0.25    0.05

      3. For annuities and guaranteed interest contracts valued on an issue year basis, other than those with no cash settlement options, that do not guarantee interest on considerations received more than one (1) year after issue or purchase and for annuities and guaranteed interest contracts valued on a change in fund basis that do not guarantee interest rates on considerations received more than twelve (12) months beyond the valuation date, the factors in subdivision (c)(3)(A) or derived in subdivision (c)(3)(B) increased by:

        For Plan Type

        A     B     C

        0.05    0.05    0.05

      4. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration in excess of twenty (20) years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guaranteed duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence.
      5. Plan type as used in subdivisions (c)(3)(A)-(C) is defined as follows:
        1. Plan Type A: At any time policyholder may withdraw funds only:
          1. With an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company;
          2. Without an adjustment but installments over five (5) years or more;
          3. As an immediate life annuity; or
          4. No withdrawal permitted;
        2. Plan Type B: Before expiration of the interest rate guarantee, policyholder may withdraw funds only:
          1. With an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company;
          2. Without an adjustment but in installments over five (5) years or more;
          3. No withdrawal permitted; or
          4. At the end of interest rate guarantee, funds may be withdrawn without an adjustment in a single sum or installments over less than five (5) years;
        3. Plan Type C: Policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five (5) years either:
          1. Without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company; or
          2. Subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.
        1. A company may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change in fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options must be valued on an issue year basis.
        2. As used in this section, an issue year basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract, and the change in fund basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund.
  4. The reference interest rate referred to in subsection (b) means:
    1. For life insurance, the lesser of the average over a period of thirty-six (36) months and the average over a period of twelve (12) months, ending on June 30 of the calendar year preceding the year of issue, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.;
    2. For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or year of purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.;
    3. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subdivision (d)(2), with guarantee duration in excess of ten (10) years, the lesser of the average over a period of thirty-six (36) months and the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.;
    4. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subdivision (d)(2), with guarantee duration of ten (10) years or less, the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.;
    5. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over a period of twelve (12) months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.; or
    6. For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, except as stated in subdivision (d)(2), the average over a period of twelve (12) months, ending on June 30 of the calendar year of the change in the fund, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody's Investors Service, Inc.
  5. For alternative method for determining reference interest rates, in the event that the monthly average of the composite yield on seasoned corporate bonds is no longer published by Moody's Investors Service, Inc., or in the event that the NAIC determines that the monthly average of the composite yield on seasoned corporate bonds as published by Moody's Investors Service, Inc., is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate adopted by the NAIC and approved by regulations promulgated by the commissioner may be substituted.

Acts 2013, ch. 260, § 3.

56-1-907. Reserve valuation method — Life insurance and endowment benefits.

  1. Except as otherwise provided in §§ 56-1-908, 56-1-911 and 56-1-913, reserves according to the commissioner's reserve valuation method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums, shall be the excess, if any, of the present value, at the date of valuation, of the future guaranteed benefits provided for by those policies, over the then present value of any future modified net premiums therefore. The modified net premiums for a policy shall be the uniform percentage of the respective contract premiums for the benefits such that the present value, at the date of issue of the policy, of all modified net premiums shall be equal to the sum of the then present value of the benefits provided for by the policy and the excess of subdivision (a)(1) over subdivision (a)(2), as follows:
    1. A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one (1) per annum payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the nineteen-year premium whole life plan for insurance of the same amount at an age one (1) year higher than the age at issue of the policy;
    2. A net one-year term premium for the benefits provided for in the first policy year.
  2. For a life insurance policy issued on or after January 1, 1986, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, the reserve according to the commissioner's reserve valuation method as of any policy anniversary occurring on or before the assumed ending date defined in this part as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than the excess premium shall, except as otherwise provided in § 56-1-911, be the greater of the reserve as of the policy anniversary calculated as described in subsection (a) and the reserve as of the policy anniversary calculated as described in subsection (a), but with:
    1. The value defined in subdivision (a)(1) being reduced by fifteen percent (15%) of the amount of such excess first year premium;
    2. All present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date;
    3. The policy being assumed to mature on that date as an endowment; and
    4. The cash surrender value provided on that date being considered as an endowment benefit.
  3. In making the comparison the mortality and interest bases in §§ 56-1-904 and 56-1-906 shall be used.
  4. Reserves according to the commissioner's reserve valuation method shall be calculated by a method consistent with subsections (a) and (b) for:
    1. Life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums;
    2. Group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code (26 U.S.C. § 408), as amended;
    3. Disability and accidental death benefits in all policies and contracts; and
    4. All other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts.

Acts 2013, ch. 260, § 3.

56-1-908. Reserve valuation method — Annuity and pure endowment benefits.

  1. This section shall apply to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under § 408 of the Internal Revenue Code (26 U.S.C. § 408), as amended.
  2. Reserves according to the commissioners annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in the contracts, shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by the contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of the contract, that become payable prior to the end of the respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate, or rates, specified in the contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of the contracts to determine nonforfeiture values.

Acts 2013, ch. 260, § 3.

56-1-909. Minimum reserves.

  1. In no event shall a company's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, issued on or after March 13, 1978, be less than the aggregate reserves calculated in accordance with the methods set forth in §§ 56-1-907, 56-1-908, 56-1-911 and 56-1-912 and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for the policies.
  2. In no event shall the aggregate reserves for all policies, contracts and benefits be less than the aggregate reserves determined by the appointed actuary to be necessary to render the opinion required by § 56-1-903.

Acts 2013, ch. 260, § 3.

56-1-910. Optional reserve calculation.

  1. Reserves for policies and contracts issued prior to March 13, 1978, may be calculated, at the option of the company, according to any standards that produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by the laws in effect immediately prior to March 13, 1978.
  2. Reserves for any category of policies, contracts or benefits established by the commissioner, issued on or after March 13, 1978, may be calculated, at the option of the company, according to any standards that produce greater aggregate reserves for the category than those calculated according to the minimum standard provided in this part, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be greater than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided in the policies or contracts.
  3. A company, which adopts at any time a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided under this part may adopt a lower standard of valuation with the approval of the commissioner, but not lower than the minimum provided herein; provided that, for the purposes of this section, the holding of additional reserves previously determined by the appointed actuary to be necessary to render the opinion required by § 56-1-903 shall not be deemed to be the adoption of a higher standard of valuation.

Acts 2013, ch. 260, § 3.

56-1-911. Reserve calculation — Valuation net premium exceeding the gross premium charged.

  1. If in any contract year the gross premium charged by a company on a policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest and method actually used for the policy or contract; or the reserve calculated by the method actually used for the policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this section are those standards stated in §§ 56-1-904 and 56-1-906.
  2. For a life insurance policy issued on or after January 1, 1986, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value, or a combination, in an amount greater than the excess premium, subsection (a) shall be applied as if the method actually used in calculating the reserve for the policy were the method described in § 56-1-907, without consideration of § 56-1-907(b). The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with § 56-1-907, including § 56-1-907(b), and the minimum reserve calculated in accordance with this section.

Acts 2013, ch. 260, § 3.

56-1-912. Reserve calculation — Indeterminate premium plans.

In the case of a plan of life insurance that provides for future premium determination, the amounts of which are to be determined by the insurance company based on then estimates of future experience, or in the case of a plan of life insurance or annuity that is of such a nature that the minimum reserves cannot be determined by the methods described in §§ 56-1-907, 56-1-908 and 56-1-911, the reserves that are held under the plan shall, as determined by regulations promulgated by the commissioner:

  1. Be appropriate in relation to the benefits and the pattern of premiums for that plan; and
  2. Be computed by a method that is consistent with the principles of this part.

Acts 2013, ch. 260, § 3.

56-1-913. Minimum standard for accident and health insurance contracts.

  1. For accident and health insurance contracts issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under § 56-1-902(b).
  2. For disability, accident and sickness, accident and health insurance contracts issued on or after January 1, 1962, and prior to the operative date of the valuation manual, the minimum standard of valuation is the standard adopted by the commissioner by regulation.

Acts 2013, ch. 260, § 3.

56-1-914. Valuation manual for policies issued on or after the operative date of the valuation manual.

  1. For policies issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under § 56-1-902(b), except as provided under subsections (e) or (g).
  2. The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which all of the following have occurred:
    1. The valuation manual has been adopted by the NAIC by an affirmative vote of at least forty-two (42) members, or three-fourths (¾) of the members voting, whichever is greater;
    2. The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by states representing greater than seventy-five percent (75%) of the direct premiums written as reported in the following annual statements submitted for 2008: life, accident and health annual statements; health annual statements; or fraternal annual statements;
    3. The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by at least forty-two (42) of the following fifty-five (55) jurisdictions: The fifty (50) states of the United States, American Samoa, the American Virgin Islands, the District of Columbia, Guam and Puerto Rico.
  3. Unless a change in the valuation manual specifies a later effective date, changes to the valuation manual shall be effective on January 1 following the date when the change to the valuation manual has been adopted by the NAIC by an affirmative vote representing:
    1. At least three-fourths (¾) of the members of the NAIC voting, but not less than a majority of the total membership; and
    2. Members of the NAIC representing jurisdictions totaling greater than seventy-five percent (75%) of the direct premiums written as reported in the following annual statements most recently available prior to the vote in subdivision (c)(1): life, accident and health annual statements, health annual statements or fraternal annual statements.
  4. The valuation manual shall specify all of the following:
    1. Minimum valuation standards for and definitions of the policies or contracts subject to § 56-1-902(b). Such minimum valuation standards shall be:
      1. The commissioner's reserve valuation method for life insurance contracts, other than annuity contracts, subject to § 56-1-902(b);
      2. The commissioner's annuity reserve valuation method for annuity contracts subject to § 56-1-902(b); and
      3. Minimum reserves for all other policies or contracts subject to § 56-1-902(b);
    2. Which policies or contracts or types of policies or contracts that are subject to the requirements of a principle-based valuation in § 56-1-915(a) and the minimum valuation standards consistent with those requirements; (3)  For policies and contracts subject to a principle-based valuation under § 56-1-915:
      1. Requirements for the format of reports to the commissioner under § 56-1-915(b)(2) and which shall include information necessary to determine if the valuation is appropriate and in compliance with this part;
      2. Assumptions shall be prescribed for risks over which the company does not have significant control or influence; and
      3. Procedures for corporate governance and oversight of the actuarial function, and a process for appropriate waiver or modification of such procedures;

        For policies not subject to a principle-based valuation under § 56-1-915, the minimum valuation standard shall either:

      4. Be consistent with the minimum standard of valuation prior to the operative date of the valuation manual; or
      5. Develop reserves that quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring;

        Other requirements, including, but not limited to, those relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memorandums, transition rules and internal controls; and

        The data and form of the data required under § 56-1-916, with whom the data must be submitted, and may specify other requirements including data analyses and reporting of analyses.

  5. In the absence of a specific valuation requirement or if a specific valuation requirement in the valuation manual is not, in the opinion of the commissioner, in compliance with this part, then the company shall, with respect to such requirements, comply with minimum valuation standards prescribed by the commissioner by regulation.
  6. The commissioner may engage a qualified actuary, at the expense of the company, to perform an actuarial examination of the company and opine on the appropriateness of any reserve assumption or method used by the company, or to review and opine on a company's compliance with any requirement set forth in this part. The commissioner may rely upon the opinion, regarding provisions contained within this part, of a qualified actuary engaged by the commissioner of another state, district or territory of the United States. As used in this subsection (f), “engage” includes employment and contracting.
  7. The commissioner may require a company to change any assumption or method that in the opinion of the commissioner is necessary in order to comply with the requirements of the valuation manual or this part; and the company shall adjust the reserves as required by the commissioner. The commissioner may take other disciplinary action as permitted pursuant to § 56-2-305 and the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 2013, ch. 260, § 3.

56-1-915. Requirements of a principle-based valuation.

  1. A company shall establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the valuation manual:
    1. Quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts. For policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk;
    2. Incorporate assumptions, risk analysis methods and financial models and management techniques that are consistent with, but not necessarily identical to, those utilized within the company's overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods;
    3. Incorporate assumptions that are derived in one (1) of the following manners:
      1. The assumption is prescribed in the valuation manual;
      2. For assumptions that are not prescribed, the assumptions shall:
        1. Be established utilizing the company's available experience to the extent it is relevant and statistically credible; or
        2. To the extent that company data is not available, relevant, or statistically credible, be established utilizing other relevant, statistically credible experience;
    4. Provide margins for uncertainty including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.
  2. A company using a principle-based valuation for one (1) or more policies or contracts subject to this section as specified in the valuation manual shall:
    1. Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual;
    2. Provide to the commissioner and the board of directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. Such controls shall be designed to assure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the valuation manual. The certification shall be based on the controls in place as of the end of the preceding calendar year;
    3. Develop, and file with the commissioner upon request, a principle-based valuation report that complies with standards prescribed in the valuation manual.
  3. A principle-based valuation may include a prescribed formulaic reserve component.

Acts 2013, ch. 260, § 3.

56-1-916. Experience reporting for policies in force on or after the operative date of the valuation manual.

A company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual.

Acts 2013, ch. 260, § 3.

56-1-917. Confidentiality.

  1. For purposes of this section, “confidential information” means:
    1. A memorandum in support of an opinion submitted under § 56-1-903 and any other documents, materials and other information, including, but not limited to, all working papers, and copies thereof, created, produced or obtained by or disclosed to the commissioner or any other person in connection with such memorandum;
    2. All documents, materials and other information, including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or any other person in the course of an examination made under § 56-1-914(f); provided, however, that if an examination report or other material prepared in connection with an examination made under § 56-1-411 is not held as private and confidential information under § 56-1-411, an examination report or other material prepared in connection with an examination made under § 56-1-914(f) shall not be confidential information to the same extent as if such examination report or other material had been prepared under § 56-1-411;
    3. Any reports, documents, materials and other information developed by a company in support of, or in connection with, an annual certification by the company under § 56-1-915(b)(2) evaluating the effectiveness of the company's internal controls with respect to a principle-based valuation and any other documents, materials and other information, including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or any other person in connection with such reports, documents, materials and other information;
    4. Any principle-based valuation report developed under § 56-1-915(b)(3) and any other documents, materials and other information, including, but not limited to, all working papers and copies thereof, created, produced or obtained by or disclosed to the commissioner or any other person in connection with such report; and
    5. Any documents, materials, data and other information submitted by a company under § 56-1-916, collectively, experience data, and any other documents, materials, data and other information, including, but not limited to, all working papers, and copies thereof, created or produced in connection with such experience data, in each case that include any potentially company-identifying or personally identifiable information, that is provided to or obtained by the commissioner (together with any experience data, the experience materials) and any other documents, materials, data and other information, including, but not limited to, all working papers, and copies thereof, created, produced or obtained by or disclosed to the commissioner or any other person in connection with such experience materials.
  2. For privilege for, and confidentiality of, confidential information:
    1. Except as provided in this section, a company's confidential information is confidential by law and privileged, and shall not be subject to § 10-7-503 or § 56-1-602, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action; provided, however, that the commissioner is authorized to use the confidential information in the furtherance of any regulatory or legal action brought against the company as a part of the commissioner's official duties;
    2. Neither the commissioner nor any person who received confidential information while acting under the authority of the commissioner shall be permitted or required to testify in any private civil action concerning any confidential information;
    3. In order to assist in the performance of the commissioner's duties, the commissioner may share confidential information:
      1. With other state, federal and international regulatory agencies and with the NAIC and its affiliates and subsidiaries;
      2. In the case of confidential information specified in subdivisions (a)(1) and (4) only, with the Actuarial Board for Counseling and Discipline or its successor upon request stating that the confidential information is required for the purpose of professional disciplinary proceedings and with state, federal and international law enforcement officials; and
      3. Provided that such recipient agrees, and has the legal authority to agree, to maintain the confidentiality and privileged status of such documents, materials, data and other information in the same manner and to the same extent as required for the commissioner;
    4. The commissioner may receive documents, materials, data and other information, including otherwise confidential and privileged documents, materials, data or information, from the NAIC and its affiliates and subsidiaries, from regulatory or law enforcement officials of other foreign or domestic jurisdictions and from the Actuarial Board for Counseling and Discipline or its successor and shall maintain as confidential or privileged any document, material, data or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or other information;
    5. The commissioner may enter into agreements governing sharing and use of information consistent with this subsection (b);
    6. No waiver of any applicable privilege or claim of confidentiality in the confidential information shall occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in subdivision (b)(3);
    7. A privilege established under the law of any state or jurisdiction that is substantially similar to the privilege established under this subsection (b) shall be available and enforced in any proceeding in, and in any court of, this state;
    8. In this section, “regulatory agency,” “law enforcement agency” and “NAIC” include, but are not limited to, their employees, agents, consultants and contractors.
  3. Notwithstanding subsection (b), any confidential information specified in subdivisions (a)(1) and (4):
    1. May be subject to subpoena for the purpose of defending an action seeking damages from the appointed actuary submitting the related memorandum in support of an opinion submitted under § 56-1-903 or principle-based valuation report developed under § 56-1-915(b)(3) by reason of an action required pursuant to this part or by regulations promulgated by the commissioner;
    2. May otherwise be released by the commissioner with the written consent of the company; and
    3. Once any portion of a memorandum in support of an opinion submitted under § 56-1-903 or a principle-based valuation report developed under § 56-1-915(b)(3) is cited by the company in its marketing or is publicly volunteered to or before a governmental agency other than a state insurance department or is released by the company to the news media, all portions of such memorandum or report shall no longer be confidential.

Acts 2013, ch. 260, § 3.

Cross-References. Confidentiality of public records, § 10-7-504.

56-1-918. Single state exemption.

  1. The commissioner may exempt specific product forms or product lines of a domestic company that is licensed and doing business only in this state from § 56-1-914; provided, that:
    1. The commissioner has issued an exemption in writing to the company and has not subsequently revoked the exemption in writing; and
    2. The company computes reserves using assumptions and methods used prior to the operative date of the valuation manual in addition to any requirements established by the commissioner and promulgated by regulation.
  2. For any company granted an exemption under this section, §§ 56-1-903 — 56-1-913 shall be applicable. With respect to any company applying this exemption, any reference to § 56-1-914 found in §§ 56-1-903 — 56-1-913 shall not be applicable.

Acts 2013, ch. 260, § 3.

56-1-919. Conflicts with other laws — Applicability date.

To the extent that this part conflicts with or is inconsistent with any law, this part shall control. This part shall apply to policies and contracts issued on or after January 1, 1962.

Acts 2013, ch. 260, § 3.

Chapter 2
Insurance Companies

Part 1
General Requirements for Doing Business

56-2-101. Applicability to foreign and domestic companies.

This section, §§ 56-2-10256-2-104, 56-2-11356-2-115, 56-2-201, and 56-2-301 shall be applicable to both domestic and foreign insurance companies unless otherwise specifically provided in a particular section or subsection.

Acts 1955, ch. 13, § 1; T.C.A., §§ 56-302, 56-201.

Cross-References. Indemnified employee welfare benefit plans, ch. 40 of title 56.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 4.

56-2-102. Requisites for commencing business — Foreign insurance companies qualifying as domestic corporations — Foreign credit life reinsurance companies.

  1. No domestic insurance company or foreign insurance company shall commence business in this state until it has complied with § 56-2-101, this section, §§ 56-2-103,  56-2-104, 56-2-113 — 56-2-115, 56-2-201, and 56-2-301, and has received from the commissioner a certificate of authority to do business.
  2. Any company organized under the laws of any other state or country, and that is admitted to do business in this state for the purpose of writing insurance authorized by this chapter, upon complying with all of the requirements of law relative to the organization of domestic insurance companies and payment of fees by like domestic insurance corporations, and designating its principal place of business at a place in this state, may become a domestic corporation and be entitled to like certificates of its corporate existence and license to transact business in this state, and be subject in all respects to the authority and jurisdiction of this state.
  3. A foreign credit life reinsurance company that meets the capital requirements of § 56-2-114(b) and that has at least fifty percent (50%) of its outstanding voting stock owned by persons or entities domiciled in this state, shall be entitled to obtain certificates of its corporate existence and shall be licensed to transact its business in this state, and be subject in all respects to the authority and jurisdiction of this state, if the following conditions are met:
    1. Approval by the commissioner of commerce and insurance in its state of domicile to change its state of domicile to this state;
    2. Submission to the Tennessee commissioner of commerce and insurance of a certificate of good standing from its state of domicile;
    3. Compliance with all of the requirements of law relative to the organization of domestic insurance companies and payment of fees required by domestic insurance companies; and
    4. Designation of a place in this state as its principal place of business.

Acts 1895, ch. 160, § 9; Shan., § 3292; Code 1932, § 6107; C. Supp. 1950, § 6107; Acts 1951, ch. 212, § 1; mod. T.C.A. (orig. ed.), § 56-301; Acts 1955, ch. 13, § 1; 1978, ch. 511, § 1; T.C.A., § 56-202; Acts 1988, ch. 667, § 2.

Cross-References. Foreign fraternal benefit society, qualifications for admission to state, § 56-25-605.

Mutual or assessment fire insurance companies, § 56-20-101.

Unlawful to enter contracts without certificate of authority, § 56-2-105.

Collateral References.

Public officials or their bonds, personal liability of, for permitting insurance company to engage or continue in business without complying with statutory requirements. 131 A.L.R. 275.

56-2-103. Qualifications necessary to do business — Commissioner to accept process — Deposit of securities.

  1. No domestic or foreign insurance company shall be qualified and authorized to do business in this state until:
    1. It files or deposits with the commissioner a properly certified copy of its charter or deed of settlement and, if a foreign insurance company, a statement of its financial condition and business on December 31 preceding the date on which it applies for permission to transact business, in the form and detail the commissioner requires, signed and sworn to by its president and secretary, or other proper officers, and pays for the filing of the copy and statement the sum of one hundred dollars ($100). If it is a foreign insurance corporation, it shall also file and deposit with the commissioner a certified statement of the secretary of state to the effect that its name complies with the requirements of title 48, chapter 14 or title 48, chapter 54, as applicable;
    2. It satisfies the commissioner that it is fully and legally organized under the laws of the state or foreign nation of its incorporation, and that it possesses and maintains the amount of capital, if a stock company, or surplus funds, if a mutual, reciprocal or Lloyd's plan insurer, required by § 56-2-114 and the amount of additional surplus required by § 56-2-115, to do the kind or kinds of business it proposes to transact;
    3. It, by duly executed instrument filed in the commissioner's office, constitutes and appoints the commissioner, the commissioner's chief deputy, or their successors, its true and lawful attorneys upon either of whom all lawful process in any action or legal proceeding against it may be served, and in the instrument agrees that any lawful process against it, which may be served upon its attorney, shall be of the same force and validity as if served on the company, and that the authority of the instrument shall continue in force, irrevocably, as long as any liability of the company remains outstanding in this state. Any process issued by any court of record in this state and served upon the commissioner or the commissioner's chief deputy by the proper officer of the county in which the commissioner or the chief deputy may have an office shall be deemed a sufficient process on the company, and it is the duty of the commissioner or the chief deputy, promptly, after service of process by any claimant, to forward, by registered mail, an exact copy of the notice to the company. Service of process from any county in this state upon the commissioner or the chief deputy by the proper officer of the county in which the commissioner or the chief deputy may have an office shall establish proper venue in the county from which the process was issued, if the plaintiff resides in that county, whether the insurance company has an office or agency located in one (1) or more other counties of this state or not;
      1. If it is a foreign stock or mutual life insurance company, it satisfies the commissioner that it has and shall maintain on deposit with the state treasurer, or with the proper officer of some other state, securities in the actual cash value of at least two hundred thousand dollars ($200,000) consisting of bonds of the United States, or any agency or instrumentality of the United States, which have been included in the three (3) highest grades by any of the recognized securities rating firms, bonds of this state, bonds of the state of domicile, or bonds publicly issued by any solvent institution created or existing under the laws of the United States or any state of the United States, which have been included in the three (3) highest grades by any of the recognized securities rating firms, and the company files with the commissioner the certificate of the official with whom the securities are deposited, stating the time and amount, and that the official is satisfied that they are worth two hundred thousand dollars ($200,000) and that the deposit is made with the official by the company for the protection of all policyholders and creditors in the United States;
      2. Notwithstanding subdivision (a)(4)(A), the commissioner may decline to accept as a deposit any specific issue of securities that the commissioner has determined may not provide the necessary protection to policyholders and creditors in the United States;
    4. If it is a foreign insurance company, it files a report of its real estate holdings, if required by the commissioner in the commissioner's discretion, so as to give the information required concerning domestic life insurance companies in § 56-3-305. The commissioner may refuse to admit and authorize a foreign insurance company to do business in this state in the event its land and the building or buildings on the land in which it has its principal office, and its other real property used in the transaction of insurance business, exceeds the maximum percentage of its admitted assets prescribed for domestic life insurance companies in § 56-3-305; and
    5. The commissioner shall not approve any articles of incorporation or issue a certificate of authority to any company until finding that:
      1. The company has submitted a plan of operation; and
      2. The incorporators, directors and proposed officers are of known good character and there is no good reason to believe that they are affiliated, directly or indirectly, through ownership, control, management, reinsurance transactions or other insurance or business relations with any person or persons known to have been involved in the improper manipulation of assets, accounts, reinsurance, or any matter inimical to the business of insurance.
  2. The commissioner is authorized to promulgate rules and regulations the commissioner deems reasonable and necessary requiring the furnishing of information relative to election or appointment of new officers and directors by insurance companies licensed to do business in this state. If, after a hearing afforded the officer or director and the insurance company, the commissioner finds that the officer or director is incompetent, untrustworthy, or of known bad character, the commissioner may order the removal of the person as an officer or director of the insurance company. If the insurance company does not comply with the removal order within thirty (30) days after its receipt of the order, the commissioner may suspend the insurance company's certificate of authority to do business in this state until such time as the company is in compliance with the order.

Acts 1895, ch. 160, § 9; 1901, ch. 131, § 1; 1907, ch. 493, § 1; Shan., § 3292; Code 1932, § 6107; Acts 1947, ch. 223, § 1; C. Supp. 1950, § 6107; Acts 1951, ch. 212, § 1; T.C.A. (orig. ed.), §§ 56-302, 56-303, 56-307, 56-308; Acts 1955, ch. 13, § 1; 1957, ch. 5, § 1; 1957, ch. 8, § 1; 1967, ch. 24, § 1; 1967, ch. 31, §§ 3, 4; 1967, ch. 130, § 1; 1967, ch. 352, § 1; 1968, ch. 523, § 1(17.05); impl. am. Acts 1971, ch. 137, § 2; T.C.A., § 56-203; Acts 1984, ch. 617, § 1.

Cross-References. Certified mail instead of registered mail, § 1-3-111.

Commissioner as attorney for receipt of process, § 56-2-503.

Secretary of state as attorney for receipt of process, § 56-2-505.

Textbooks. Gibson's Suits in Chancery (7th ed., Inman), § 133.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 106; 15 Tenn. Juris., Insurance, §§ 2—5; 24 Tenn. Juris., Venue, § 4.

Law Reviews.

Tennessee Workers' Compensation — Where Is the Proper Venue? (D. Andrew Byrne, Ted C. Raynor), 20 Mem. St. U. L. Rev. 189 (1990).

56-2-104. Contents of statement — Deposits.

  1. Any domestic company shall satisfy the commissioner that:
    1. It is fully and legally organized under the laws of this state to do the business it proposes to transact;
      1. If it is a stock life insurance company or a mutual life insurance company, it has and will maintain on deposit with the state treasurer, or with such other officer designated by law, at least two hundred thousand dollars ($200,000) in cash or its equivalent; but the commissioner may, in the commissioner's discretion, accept as an equivalent bonds of the United States, or any agency or instrumentality of the United States, which have been included in the three (3) highest grades by any of the recognized securities rating firms, bonds of this state, bonds of the state of domicile, or bonds publicly issued by any solvent institution created or existing under the laws of the United States or any state of the United States, which have been included in the three (3) highest grades by any of the recognized securities rating firms;
      2. Notwithstanding subdivision (a)(2)(A), the commissioner may decline to accept as a deposit any specific issue of securities that the commissioner has determined may not provide the necessary protection to policyholders and creditors in the United States;
        1. The company shall likewise be required to file with the commissioner the certificate of the official with whom the securities are deposited, stating the time and amount of bonds of the United States, or any agency or instrumentality of the United States, which have been included in the three (3) highest grades by any of the recognized securities rating firms, bonds of this state, bonds of the state of domicile, or bonds publicly issued by any solvent institution created or existing under the laws of the United States or any state, which have been included in the three (3) highest grades by any of the recognized securities rating firms, and that the commissioner is satisfied they are worth two hundred thousand dollars ($200,000), and that the deposit was made with the commissioner by the company for the protection of all policyholders and creditors in the United States;
        2. Notwithstanding subdivision (a)(2)(C)(i), the commissioner may decline to accept as a deposit any specific issue of securities that the commissioner has determined may not provide the necessary protection to policyholders and creditors in the United States;
        1. If the applicant is an insurance company other than a stock or mutual life insurance company, each company shall maintain on deposit at least one hundred thousand dollars ($100,000) in cash or its equivalent for each kind or class of insurance as defined in § 56-2-201; but the commissioner, in the commissioner's discretion, may accept as an equivalent bonds of the United States, or any agency or instrumentality of the United States, which have been included in the three (3) highest grades by any of the recognized securities rating firms, bonds of this state, bonds of the state of domicile, or bonds publicly issued by any solvent institution created or existing under the laws of the United States or any state, which have been included in the three (3) highest grades by any of the recognized securities rating firms;
        2. Notwithstanding subdivision (a)(2)(D)(i), the commissioner may decline to accept as a deposit any specific issue of securities that the commissioner has determined may not provide the necessary protection to policyholders and creditors in the United States. The deposits shall be subject to the same conditions as required in the case of stock or mutual life insurance companies; and
      1. The insurer's principal place of business is or will be located and maintained in this state. This subdivision (a)(3)(A) also applies to domestic health maintenance organizations. This subdivision (a)(3)(A) does not apply to:
        1. Any insurer that was a domestic insurer prior to July 1, 1993, and whose primary executive, administrative and home offices were located outside of the state prior to July 1, 1993; or
        2. Any domestic reciprocal whose primary executive, administrative and home offices, and original books and records, were located and maintained outside the state prior to January 1, 1996;
      2. The commissioner may suspend or revoke, after notice and hearing, the certificate of authority of a domestic company found to be in violation of subdivision (a)(3)(A);
      3. The commissioner, in the commissioner's sole discretion, may waive the requirement in subdivision (a)(3)(A) for any company.
    1. The deposit required by this section is not applicable to foreign stock or mutual life insurance companies, or to domestic or foreign insurance companies writing workers' compensation insurance or fidelity and surety bonds. Companies writing that type or form of insurance shall make deposits in accordance with the requirements of existing laws.
    2. The provisions of this section applicable to domestic insurance companies shall apply to all insurance companies and associations except those specifically exempted in this section, whether the companies are stock or mutual, and it is specifically provided that §§ 56-2-101 — 56-2-103, this section, §§ 56-2-113 — 56-2-115, 56-2-201, and 56-2-301 fully apply to all such companies or associations regardless of what law or statute of this state under which the companies or associations may have been organized.
    3. No requirement in this section not in effect on January 1, 1967, shall be considered applicable to any insurance company properly licensed to transact business in this state as of that date, except that any stock casualty company, foreign or domestic, not having at least one hundred thousand dollars ($100,000) in cash or equivalent on deposit for each kind of insurance as defined in § 56-2-201, shall meet the requirement by December 31, 1978. Domestic stock casualty companies not maintaining capital paid up of at least one hundred thousand dollars ($100,000) shall make a deposit equal to their capital paid up by December 31, 1977.
    4. This section shall not apply to, or affect, or be construed as in anywise applying to, or affecting, domestic state and county mutual fire insurance companies, the organization of which was and is authorized by chapters 19-21 of this title.

Acts 1935, ch. 183, §§ 2, 3; 1935 (E.S.), ch. 51, § 1; C. Supp. 1950, §§ 6130.1-6130.3 (Williams, §§ 6130.2, 6130.3, 6130.5); T.C.A. (orig. ed.), §§ 56-202 — 56-204; Acts 1955, ch. 13, § 2; 1967, ch. 31, §§ 1, 2; 1977, ch. 29, § 1; T.C.A., § 56-204; Acts 1980, ch. 503, § 2; 1984, ch. 617, §§ 2-4; 1993, ch. 253, § 19; 1999, ch. 89, § 1; 2012, ch. 680, § 1; 2013, ch. 5, §§ 1, 2; 2015, ch. 155, §§ 1, 2.

Compiler's Notes. Acts 2012, ch. 680, § 5 provided that the commissioner of commerce and insurance is authorized to promulgate emergency rules to implement the act.

Cross-References. Annual reports of fires to be made, § 68-102-114.

Capital and deposits of foreign insurance companies, §§ 56-2-10156-2-103, 56-2-114, 56-2-115, 56-2-405.

56-2-105. Certificate of authority required — Exceptions.

It is unlawful for any company to enter into a contract of insurance as an insurer or to transact insurance business in this state without a certificate of authority from the commissioner; provided, that this section shall not apply to:

  1. Contracts procured by agents or brokers under the authority of the Surplus Lines Insurance Act, compiled in chapter 14 of this title;
  2. Contracts of reinsurance;
  3. Transactions in this state involving policies lawfully solicited, written and delivered outside of this state covering only subjects of insurance not resident, located or expressly to be performed in this state at the time of issuance or covering property in the course of transportation by land, air or water, to, from or through this state and including any preparation or storage incidental thereto, and which transactions are subsequent to the issuance of those policies;
  4. Transactions in this state involving group or blanket insurance and group annuities where the master policy of the groups was lawfully issued and delivered in a state in which the company was authorized to transact insurance business;
  5. Transactions in this state involving a policy issued prior to April 3, 1968;
  6. Any life insurance or annuity company that holds a certificate of exemption from the commissioner as provided in § 56-2-106; or
    1. The procuring of contracts of insurance issued to an industrial insured;
    2. For the purposes of subdivision (7)(A), an “industrial insured” is an insured:
      1. Who procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer;
      2. Whose aggregate annual premiums for insurance on all risks total at least twenty-five thousand dollars ($25,000); and
      3. Who has at least twenty-five (25) full-time employees.

Acts 1968, ch. 536, § 1; 1969, ch. 270, § 19; T.C.A., § 56-205.

Cross-References. Injunction to prevent violation, § 56-2-110.

Penalty for violation, § 56-2-108.

Surplus lines insurance authorized, § 56-14-103.

Attorney General Opinions. Stop-loss insurance to preferred provider organizations, OAG 94-017, 1994 Tenn. AG LEXIS 13 (2/16/94).

56-2-106. Certificate of exemption.

  1. The commissioner shall, upon the payment of a filing fee of one hundred dollars ($100), grant a certificate of exemption to any life insurance or annuity company:
    1. That is organized and operated without profit to any private shareholder or individual;
    2. That is organized and operated exclusively for the purpose of aiding educational or scientific institutions that are also organized and operated without profit to any private shareholder or individual;
    3. That serves that purpose by issuing insurance and annuity contracts only to or for the benefit of the educational or scientific institutions or to individuals engaged in the service of the institutions;
    4. That appoints the commissioner, and the commissioner's successors in office, as its attorney to receive the service of process issued against it in this state, which appointment shall be irrevocable, shall bind the company and any successor in interest, and shall remain in effect so long as there is in force in this state any contract or policy made or issued by the company or any obligation arising from the contract or policy;
    5. That is fully and legally organized and qualified to do business and that has been actively doing business under the laws of the state of its incorporation for a period of at least three (3) years prior to its application for a certificate of exemption, and possesses and maintains the amount of capital and surplus that would be required for a company to be qualified in this state to do the kind or kinds of business it transacts; and
    6. Whose directors and officers are of known good character and are not affiliated, directly or indirectly, through ownership, control, management, reinsurance transactions, or other insurance or business relations with any person known to have been involved in the improper manipulation of assets, accounts, reinsurance or any matter inimical to the business of insurance.
  2. If, after reasonable notice and a hearing, the commissioner finds that any company holding a certificate of exemption no longer meets the requirements of subdivisions (a)(1)-(6), or finds that any company holding a certificate of exemption has been guilty of any unfair method of competition or any unfair or deceptive acts or practices, as defined in § 56-8-104, the commissioner may enter an order suspending or revoking the certificate of exemption, which order may be reviewed by the writs of certiorari and supersedeas as otherwise provided by law.
  3. Any company holding a certificate of exemption shall pay the premium tax imposed by § 56-4-205 on all policies of life insurance issued after April 4, 1968, to residents of the state, which policies are not issued pursuant to a plan or program authorized by the governing board of the educational or scientific institution, and the premiums for which are not paid for in whole or in part by the educational or scientific institution.

Acts 1968, ch. 536, § 1; T.C.A., § 56-206.

Cross-References. Writs of certiorari and supersedeas, title 27, ch. 8.

56-2-107. Acts of unauthorized insurers constituting doing business in state.

Any of the following acts in this state, effected by mail or otherwise by an unauthorized insurer, are included among those deemed to constitute transacting insurance business in this state:

  1. The issuance or delivery of contracts of insurance to residents of this state;
  2. The solicitation of applications for contracts of insurance;
  3. The collection of premiums, membership fees, assessments or other considerations for contracts of insurance; or
  4. The transaction of matters subsequent to the execution of contracts of insurance and arising out of them.

Acts 1968, ch. 536, § 2; T.C.A., § 56-207.

Cross-References. Applicability of section to persons transacting business of legal insurance, § 56-43-111.

56-2-108. Violation of § 56-2-105 — Penalty.

  1. Any company that violates § 56-2-105 is subject to a fine or a civil penalty, or both, of not less than one hundred dollars ($100) nor more than five thousand dollars ($5,000) for each violation.
  2. Each day in which a violation occurs constitutes a separate violation.

Acts 1968, ch. 536, § 3; 1973, ch. 244, § 1; T.C.A., § 56-208.

56-2-109. No action to be maintained without certificate of authority.

The failure of a company to obtain a certificate of authority shall not impair the validity of any act or contract of the company, and shall not prevent the company from defending any action at law or suit in equity in any court of this state; but no company transacting insurance business in this state without a certificate of authority shall be permitted to maintain an action at law or suit in equity in any court of this state to enforce any right, claim or demand arising out of the transaction of insurance business until the company has obtained a certificate of authority, nor shall an action at law or suit in equity be maintained in any court of this state by any successor or assignee of the company on any right, claim or demand originally held by the company until a certificate of authority has been obtained by the company or by a company that has acquired all or substantially all of its assets.

Acts 1968, ch. 536, § 4; T.C.A., § 56-209.

56-2-110. Injunction to prevent violation of § 56-2-105.

  1. Whenever the commissioner believes, from evidence satisfactory to the commissioner, that any foreign or alien company is violating or is about to violate § 56-2-105, the commissioner may, through the attorney general and reporter, cause a bill to be filed in the chancery court of Davidson County to enjoin and restrain the company from continuing the violation, engaging in the violation or doing any act in furtherance of the violation.
  2. The court shall have jurisdiction of the proceeding and shall have the power to make and enter an order or decree awarding the preliminary or final injunctive relief as in its judgment is proper.

Acts 1968, ch. 536, § 5; T.C.A., § 56-210.

56-2-111. Liability for tax on gross premium.

Any company violating § 56-2-105 shall be liable, with respect to any contract of insurance or transaction of insurance business as defined and limited in § 56-2-105, for the payment of all taxes on gross premiums imposed in chapter 4 of this title.

Acts 1968, ch. 536, § 6; T.C.A., § 56-211.

Cross-References. Applicability of section to persons transacting business of legal insurance, § 56-43-111.

56-2-112. Deposits in trust to secure policyholders.

  1. The state treasurer, in an official capacity, shall take and hold in trust deposits made by any domestic insurance company for the purpose of complying with the laws of any other state, to enable the company to do business in the other state, and shall also, in a like manner, take and hold any deposits made by a foreign insurance company under any law of the state.
  2. The company making the deposits shall be entitled to the income of the deposits, and may, from time to time, with the consent of the state treasurer, when not forbidden by the law under which the deposits are made, change, in whole or in part, the securities that compose the deposit for other competent securities of equal value.
    1. Upon the request of any domestic insurance company, the state treasurer may return to the company the whole or any portion of the securities of the company, when the state treasurer is satisfied that the securities so asked to be returned are subject to no liability, and not required to be longer held by any law or purpose of the original deposit.
    2. The state treasurer may return to the trustees or other representatives, authorized for that purpose, of a foreign insurance company, any deposit made by the company, when it appears that the company has ceased to do business in the state, and is under no obligations to policyholders or other persons in the state or in the United States, for whose benefit the deposit was made.

Acts 1895, ch. 160, § 24; Shan., § 3308; Code 1932, § 6128; T.C.A. (orig. ed.), §§ 56-223, 56-212.

Cross-References. Capital and deposits of foreign insurance companies, §§ 56-2-10156-2-103, 56-2-114, 56-2-115.

Deposit with treasurer of state or other officer by company organized on or after January 1, 1967, § 56-2-104.

NOTES TO DECISIONS

1. Effect of Reinsurance on Deposit.

An insurance company ceased to do business and its assets and liabilities were assumed by a second company; the second company was entitled to first company's trust deposit, and such deposit was not impressed with a trust in favor of first company's policyholder, even though second company's assets exceeded its liabilities, where second company was a going concern and had committed no act of insolvency. Julian v. American Nat'l Bank, 21 Tenn. App. 137, 106 S.W.2d 871, 1937 Tenn. App. LEXIS 15 (Tenn. Ct. App. 1937).

56-2-113. Period of organization before admission of foreign companies — Exceptions.

  1. No foreign insurance company transacting any of the kinds of insurance as defined in § 56-2-201 shall be admitted and authorized to do business in this state until it can satisfy the commissioner that it has been organized and actively engaged in the insurance business in the state of its incorporation for a period of three (3) years prior to the date of its application to be admitted and authorized to do business in this state.
  2. Subsection (a) does not apply to a foreign insurance company that is:
    1. The wholly-owned subsidiary of an insurance company or health maintenance organization admitted and authorized to do business in this state;
    2. The continuing corporation resulting from a merger or consolidation of insurance companies at least one (1) of which, prior to the merger or consolidation, met all the requirements for admission and authorization to do business in this state, including the requirement of having been actively engaged in the insurance business in its state of incorporation for three (3) years;
    3. The wholly-owned subsidiary of a holding company that also owns one hundred percent (100%) of the common capital stock, excluding qualifying shares required to be held by directors, of an insurance company or health maintenance organization admitted and authorized to do business in this state; or
    4. A foreign insurance company originally chartered and licensed to transact business in this state, and making application to redomesticate to this state upon furnishing the following from the commissioner of commerce and insurance of its state of domicile:
      1. Letter of approval to redomesticate;
      2. Letter of intent to permit the company to transfer its business and assets to this state; and
      3. A certificate of good standing.
  3. “Owned” and “owns,” as used in subsection (b), mean ownership either directly or indirectly through one (1) or more intermediaries.
  4. The commissioner, in the commissioner's sole discretion, may waive the requirement in subsection (a) for any company, if the commissioner determines it is in the public interest.

Acts 1955, ch. 13, § 1, T.C.A., § 56-307; Acts 1959, ch. 201, § 1; 1967, ch. 25, § 1; 1972, ch. 585, § 1; 1975, ch. 167, § 1; T.C.A., § 56-213; Acts 1984, ch. 667, § 1; 1987, ch. 68, § 1; 2005, ch. 319, §§ 1, 2; 2010, ch. 780, § 1.

56-2-114. Capital requirements for insurance combinations and reinsurance.

  1. An insurer otherwise qualified therefor may be authorized to transact combinations of kinds of insurance while processing and maintaining capital, if a stock company, or surplus funds, if a mutual, reciprocal, or Lloyd's plan insurer, in the amount of one million dollars ($1,000,000).
  2. To transact the business of reinsuring credit life and credit accident insurance and health insurance, an insurer must possess and maintain capital in the amount of one hundred fifty thousand dollars ($150,000); provided, that a company so authorized shall not be authorized to conduct any other line of business unless otherwise qualified.

Acts 1895, ch. 160, § 9, par. 2; 1901, ch. 131, § 1; 1907, ch. 493, § 1; Shan., § 3292; Code 1932, § 6107; Acts 1947, ch. 223, § 1; C. Supp. 1950, § 6107; Acts 1951, ch. 212, § 1; T.C.A. (orig. ed.), § 56-304; Acts 1955, ch. 13, § 1; 1967, ch. 31, § 5; T.C.A. (orig. ed.), § 56-214; Acts 1985, ch. 107, § 4; 1986, ch. 535, § 1.

Cross-References. Credit life and health insurance, title 56, ch. 7, part 9.

56-2-115. Additional surplus requirement.

In addition to the paid up capital stock or surplus as required under §§ 56-2-103 and 56-2-114(a), all insurance companies doing business in this state shall possess and maintain bona fide surplus funds in the amount of one million dollars ($1,000,000), except for insurance companies authorized under § 56-2-114(b), which shall possess and maintain bona fide surplus funds equaling in amounts not less than fifty percent (50%) of the capital stock or surplus otherwise required by § 56-2-114(b).

Acts 1895, ch. 160, § 9, par. 2; 1901, ch. 131, § 1; 1907, ch. 493, § 1; Shan., § 3292; Code 1932, § 6107; Acts 1947, ch. 223, § 1; C. Supp. 1950, § 6107; Acts 1951, ch. 212, § 1; T.C.A. (orig. ed.), § 56-305; Acts 1955, ch. 13, § 1; T.C.A. (orig. ed.), § 56-215; Acts 1986, ch. 535, § 2.

56-2-116. Exemption of previously licensed companies — Termination of exemption for foreign insurance companies.

  1. No requirement of §§ 56-2-101 — 56-2-103, 56-2-113 — 56-2-115, 56-2-201, and 56-2-301 not in effect on March 1, 1986, shall be considered applicable to any insurance company properly licensed to transact business in this state on that date.
  2. Notwithstanding subsection (a), any foreign insurance company filing an annual statement under § 56-1-501, not possessing the minimum capital and surplus required by §§ 56-2-114 and 56-2-115 on and after January 1, 1987, shall cease to write any new business until the minimum capital and surplus required are met.
  3. Subsection (b) shall not apply to the procedures and capital requirements of a casualty company for the exclusive purpose of writing bonds only.
  4. Any domestic insurer otherwise exempt under subsection (a) that at any time meets the capital and surplus requirements under this chapter shall thereafter be required to maintain the required capital and surplus limits.

Acts 1955, ch. 13, § 6 (T.C.A. (supp.), § 56-322); Acts 1967, ch. 31, § 6; 1977, ch. 127, §§ 1, 2; T.C.A, § 56-217; Acts 1986, ch. 535, §§ 3-5.

56-2-117. [Repealed.]

Acts 1980, ch. 503, § 3; repealed by Acts 2012, ch. 680, § 2, effective July 1, 2012.

Compiler's Notes. Former § 56-2-117 concerned the deposit of securities in a clearing corporation or federal reserve bank.

56-2-118. Address and phone number of policyholder service office outside state.

  1. Every policy of life insurance, accident and health insurance, property insurance or casualty insurance issued after January 1, 1989, covering risks in this state by a company not maintaining a policyholder service office in this state, shall be accompanied by the complete address and telephone number, toll-free if available, of the policyholder service office of the company issuing the policy. In the event an insurance company that has a policyholder's service office in this state ceases to maintain the office, the company shall provide its policyholders residing in this state with a written notice containing the complete address and telephone number, toll-free if available, of the servicing agent or the nearest policyholder service office of the company.
  2. The commissioner may promulgate rules and regulations in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, to effectuate the purposes of this section.
  3. Failure to include the information required by subsection (a) shall be a deceptive act or practice and the procedures and penalties established by chapter 8, part 1 of this title, shall be applicable.

Acts 1988, ch. 721, §§ 1-3.

56-2-119. Insurance company's address to appear on insurance policy.

  1. On every policy of insurance covering risks in this state that is issued after July 1, 1991, by an insurance company doing business in this state, there shall be printed the address of the company's home office, regional office or service center.
  2. Failure to include the information required by subsection (a) is a deceptive act or practice, and the procedures and penalties established by chapter 8, part 1 of this title are applicable.

Acts 1990, ch. 671, § 1.

56-2-120. Insurers — Financial requirements — Hearings.

  1. In addition to the minimum requirements set out in §§ 56-2-114 and 56-2-115, and notwithstanding any other law to the contrary, the commissioner may require, after notice and hearing, additional amounts so that an insurer's capital, surplus funds, or surplus as regards policyholders shall be reasonable in relation to the insurer's outstanding liabilities and premiums, and adequate to its financial needs. For purposes of this part, in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and premiums and adequate to its financial needs, the following factors, among others, shall be considered:
    1. The size of the insurer as measured by its assets, capital and surplus, reserves, premium writings, insurance in force and other appropriate criteria;
    2. The extent to which the insurer's business is diversified among the several lines of insurance;
    3. The number and size of risks insured in each line of business;
    4. The extent of the geographical dispersion of the insurer's insured risks;
    5. The nature and extent of the insurer's reinsurance program;
    6. The quality, diversification and liquidity of the insurer's investment portfolio;
    7. The recent past and projected future trend in the size of the insurer's investment portfolio;
    8. The surplus as regards policyholders maintained by other comparable insurers;
    9. The adequacy of the insurer's reserves; and
    10. The quality and liquidity of investments in affiliates. The commissioner may treat the investments as a disallowed asset for purposes of determining the adequacy or surplus as regards policyholders whenever, in the commissioner's judgment, the investment so warrants.
  2. Before the commissioner takes any action pursuant to this section, the commissioner shall give written notice to the insurer involved, stating specifically the nature of the alleged deficiency in capital and surplus. Within ten (10) days after receiving notice, the insurer may request a hearing, which shall be held within thirty (30) days of the request. The burden of proof shall be on the commissioner to show the inadequacy of capital and surplus by the preponderance of the evidence. After the hearing, or if the insurer fails to request a hearing, the commissioner, if the commissioner finds a deficiency, may enter an appropriate order under this section as the commissioner deems advisable.
  3. When the commissioner takes action in any or all of the ways set out in this section, the party aggrieved may appeal from the action to the chancery court of Davidson County.

Acts 1991, ch. 142, § 1.

56-2-121. Exempt entities.

  1. A plan sponsored by a nonprofit corporation organized and created in this state primarily to promote programs for the improvement of the health of rural people in the state, which plan has provided health care benefits to the members of the corporation for a period in excess of ten (10) years, shall be deemed not to be insurance and not subject to this title, to the extent the plan, after July 1, 1993, provides the benefits under a self-funded arrangement; provided, that any stop-loss, excess or similar insurance coverage purchased as part of the plan shall be insurance subject to this title.
  2. The provisions of this title to the contrary notwithstanding, a Program for All-Inclusive Care for the Elderly (PACE) project that is sponsored by a religious or charitable organization that is itself or is controlled by a person that is organized under § 501(c)(3) of the Internal Revenue Code  (26 U.S.C. § 501(c)(3)), and that has had its application for the operation of a PACE program approved by the health care financing administration of the United States department of health and human services (HHS), and is operating under such approval, shall not be deemed to be engaged in any business required to be licensed pursuant to this title. This exemption applies only to business conducted pursuant to the approved PACE contract, and not to any other business that such organization conducts that is subject to this title.

Acts 1993, ch. 339, § 1; 1998, ch. 698, § 2.

Compiler's Notes. Acts 1998, ch. 698, § 1 provided that subsection (b) of this section shall be known and may be cited as the “Tennessee All-Inclusive Care for the Elderly Act of 1998.”

56-2-122. Nonprofit health maintenance organization as subsidiary of certain hospital corporations.

A nonprofit health maintenance organization that, with the approval of the commissioner, was created prior to January 1, 1981, by a corporation operated pursuant to chapter 28 or chapter 29 of this title may be treated by the corporation as a subsidiary solely for the purpose of determining the status of the nonprofit health maintenance organization as an admitted asset; provided, that the corporation otherwise has a net worth at least equal to the capital and surplus requirements for an insurance company under §§ 56-2-114(a) and 56-2-115.

Acts 1997, ch. 65, § 1.

56-2-123. Confirmation of verbal authorization for medical care.

If verbal authorization is given to a health care provider, insured, or enrollee for medical care under any individual, franchise, blanket or group health insurance policy, medical service plan or contract, hospital service corporation contract, hospital and medical service corporation contract, fraternal benefit society, health maintenance organization, or managed care organization, the verbal authorization shall be confirmed by written authorization, facsimile transmission, or verbally by means of a confirmation number or other confirmation code.

Acts 1997, ch. 201, § 1.

56-2-124. Hold harmless requirements prohibited.

No health insurer, prepaid group health plan, health maintenance organization, preferred provider organization or similar entity licensed under this part that provides or administers health insurance shall require, by contract or otherwise, any title 63 or title 68 licensee to indemnify or hold harmless the licensee under this title for tort or patent or copyright infringement liability that the  licensee under this title incurs, experiences, or causes by act or omission, or by act or omission of the title 63 or title 68 provider to the extent the act or omission was pursuant to a directive of the licensee under this title.

Acts 1997, ch. 376, § 1.

56-2-125. Establishment and maintenance of an all payer claims database — Establishment of Tennessee health information committee.

  1. As used in this section, unless the context otherwise  requires:
    1. “All payer claims database” means a database comprised of health insurance issuer and group health plan claims information that excludes the data elements in 45 CFR 164.514(e)(2);
    2. “Commissioner” means the commissioner of commerce and insurance;
    3. “Department” means the department of commerce and insurance;
    4. “Group health plan” means an employee welfare benefit plan, as defined in § 3(1) of the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1002(1)), to the extent that the plan provides medical care to employees or their dependents, as defined under the terms of the plan, or an administrator of the plan. For purposes of this section, “group health plan” shall not mean any plan that is offered through a health insurance issuer;
    5. “Health insurance coverage” means health insurance coverage as defined in § 56-7-2902, as well as medicare supplemental health insurance; and
    6. “Health insurance issuer” means an entity subject to the insurance laws of this state, or subject to the jurisdiction of the commissioner, that contracts or offers to contract to provide health insurance coverage, including, but not limited to, an insurance company, a health maintenance organization and a nonprofit hospital and medical service corporation. “Health insurance issuer” also means a pharmacy benefits manager, a third party administrator and an entity described in § 56-2-121.
    1. The commissioner shall establish and maintain an all payer claims database to enable the commissioner of finance and administration to carry out the following duties:
      1. Improving the accessibility, adequacy and affordability of patient health care and health care coverage;
      2. Identifying health and health care needs and informing health and health care policy;
      3. Determining the capacity and distribution of existing health care resources;
      4. Evaluating the effectiveness of intervention programs on improving patient outcomes;
      5. Reviewing costs among various treatment settings, providers and approaches; and
      6. Providing publicly available information on health care providers' quality of care.
    2. Nothing in this section shall preclude a health insurance issuer from providing information on health care providers' quality of care in accordance with § 56-32-130(e).
  2. [Deleted by 2018 amendment.]
    1. As required by HIPAA, the all payer claims database shall not publicly disclose any individually identifiable health information as defined in 45 CFR 160.103. Use of the all payer claims database shall be subject to restrictions required by HIPAA and other applicable privacy laws and policies. The all payer claims database shall be accessed only by staff or a designated entity authorized in writing by the commissioner of finance and administration to perform the analyses contemplated by this section. The commissioner shall develop procedures and safeguards to protect the integrity and confidentiality of any data contained in the all payer claims database.
        1. The all payer claims database, summaries, source, or draft information used to construct or populate the all payer claims database, patient level claims data, reports derived from the all payer claims database, and other information submitted under this section, whether in electronic or paper form, shall not be considered a public record and shall not be open for inspection by members of the public under § 10-7-503(a)(1). The information contained in the all payer claims database shall be considered confidential and not subject to subpoena.
        2. The commissioner may promulgate rules to authorize the public release of reports derived from the information. Any release of reports shall not result in such information losing its confidentiality or cause it to be admissible, except in administrative proceedings authorized under the rules adopted by the commissioner.
      1. The commissioner shall, through memoranda of understanding, allow the use of the all payer claims database by the department of finance and administration, the department of health, the department of mental health and substance abuse services, the department of intellectual and developmental disabilities, and other departments of state government for the purposes listed in subdivision (b)(1).
      2. Except for officials of the state or those officials' designees as permitted by subdivision (d)(1), nothing in this section shall be construed as permitting access to or discovery of the source or draft information used to construct or populate the all payer claims database.
  3. The all payer claims database shall contain unique health care provider identifiers that may be used in public reports; provided, however, that no information that could reveal the identity of any patient from the all payer claims database shall be made available to the public. To ensure that individual patients are not identified, the following data shall not be included in any transmission by a group health plan or health insurance issuer to the state or designated entity for the all payer claims database or in any source or draft information used to construct or populate the all payer claims database:
    1. Patient names;
    2. Patient street addresses;
    3. All elements of patient birth dates, except year of birth;
    4. Patient telephone numbers;
    5. Patient facsimile numbers;
    6. Patient electronic mail addresses;
    7. Patient social security numbers;
    8. Medical record numbers;
    9. Health plan beneficiary numbers;
    10. Patient account numbers;
    11. Patient certificate/license numbers;
    12. Vehicle identifiers and serial numbers including license plate numbers;
    13. Device identifiers and serial numbers;
    14. Web universal resource locators (URLs);
    15. Internet protocol (IP) address numbers;
    16. Biometric identifiers including fingerprints, voiceprints, and genetic code;
    17. Full-face photographic images and any comparable images; or
    18. Any other unique patient identifying number, characteristic or code, except encrypted index numbers assigned prior to the transmission by group health plans or health insurance issuers to the state or designated entity for the purpose of linking procedures by patient; provided, that a patient's identity cannot be known from the encrypted index number.
      1. No later than January 1, 2010, and every month thereafter, all group health plans and health insurance issuers shall provide electronic health insurance claims data for state residents to the commissioner or a designated entity authorized by the commissioner, in accordance with standards and procedures recommended by the Tennessee health information committee pursuant to subdivision (c)(2) and adopted by the commissioner by rule.
      2. All group health plans and health insurance issuers shall provide additional information as the Tennessee health information committee recommends and the commissioner subsequently establishes by rule for the purpose of creating and maintaining an all payer claims database.
      3. The Tennessee health information committee and the commissioner shall strive for standards and procedures that are the least burdensome for data submitters.
    1. The collection, storage and release of health and health care data and statistical information that is subject to the federal requirements of HIPAA shall be governed by the rules adopted in 45 CFR parts 160 and 164.
    2. All group health plans and health insurance issuers that collect the health employer data and information set (HEDIS) shall annually submit the HEDIS information to the commissioner in a form and in a manner prescribed by the National Committee for Quality Assurance (NCQA).
    3. If any group health plan or health insurance issuer fails to submit required data to the commissioner on a timely basis, the commissioner may impose a civil penalty of up to one hundred dollars ($100) for each day of delay.
  4. The commissioner, in the commissioner's discretion, may allow some group health plans and health insurance issuers to submit data on a quarterly basis. The commissioner may also establish by rule exceptions to the reporting requirements of this section for entities based upon an entity's size or amount of claims or other relevant factors deemed appropriate.
    1. The commissioner may, subject to the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, promulgate rules and regulations for purposes of implementing this section. The commissioner is authorized to promulgate the initial rules as emergency rules pursuant to the Uniform Administrative Procedures Act prior to January 1, 2010, for the purpose of creating the all payer claims database.
    2. The commissioner of finance and administration may, subject to the Uniform Administrative Procedures Act, promulgate rules and regulations concerning the operation of the all payer claims database and the distribution and use of information maintained or created thereby. The commissioner of finance and administration is authorized to promulgate the initial rules as emergency rules pursuant to the Uniform Administrative Procedures Act prior to January 1, 2010, for the purpose of creating the all payer claims database.

Acts 2009, ch. 611, § 3; 2010, ch. 1100, §§ 90-92; 2011, ch. 15, § 3; 2012, ch. 575, §§ 1, 2; 2015, ch. 65, §§ 3, 4; 2018, ch. 968, §§ 2, 3.

Compiler's Notes. Acts 2010, ch. 1100, § 153 provided that the commissioner of mental health and developmental disabilities, the commissioner of mental health, the commissioner of intellectual and developmental disabilities, and the commissioner of finance and administration are authorized to promulgate rules and regulations to effectuate the purposes of the act. All such rules and regulations shall be promulgated in accordance with the provisions of the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 2018, ch. 968, § 4 provided that, notwithstanding  § 4-29-112, the Tennessee health information committee, created by this section, terminated May 16, 2018.

Amendments. The 2018 amendment deleted (c) which read: “(c)(1) There is established a Tennessee health information committee, referred to as the ‘committee’ in this section. The commissioner of finance and administration shall give all consideration to policies and recommendations formed by the committee, including those formed by the committee on any issues in response to a request of the commissioner of finance and administration in the commissioner's discretion. Any recommendations developed by the committee shall, to the largest extent possible, be consistent with those of nationally recognized standard setting and accrediting bodies.“(2)(A)(i) The public release of any report utilizing data derived from the all payer claims database on quality, effectiveness, or cost of care of health care providers or provider shall require a two-thirds (2/3) affirmative vote of the committee members present.“(ii) Health insurance issuers that contribute data to the all payer claims database and providers who are subjects of reports on quality, effectiveness or cost of care that utilize data derived from the all payer claims database shall be given access to the reports sixty (60) days prior to the public release of the reports for the review and submission of comments prior to the public release.“(B) Any other committee action shall require a simple majority affirmative vote of the committee members present.“(C) Neither the committee nor the commissioner is authorized to make public release of individual patient level claims data.“(3) The committee shall develop for the commissioner of finance and administration:“(A) A description of the data sets, based on national standards, if and when available, that will be included in the all payer claims database; and“(B) A method for submission of data.“(4) The committee shall develop for the commissioner of finance and administration security measures for ensuring compliance with:“(A) The federal requirements of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (42 U.S.C. § 1320d et seq.), and implementing federal regulations; and“(B) Other state and federal privacy laws.“(5) The committee shall regularly evaluate the integrity and accuracy of the all payer claims database.“(6) The committee shall develop policies to make reports from the all payer claims database available as a resource for insurers, employers, providers and purchasers of health care, to continuously review health care utilization, expenditures and performance in this state. Such uses shall be subject to restrictions required by HIPAA and other applicable privacy laws and policies as well as to reasonable charges recommended by the committee and set by rule.“(7) The committee shall be chaired by the commissioner of finance and administration or designee and attached to the department of finance and administration for administrative purposes. The committee members shall serve without compensation and travel expenses.“(8)(A) The committee shall include:“(i) The commissioner or the commissioner’s designee;“(ii) The commissioner of health or the commissioner of health’s designee;“(iii) The commissioner of mental health and substance abuse services or the commissioner of mental health and substance abuse services' designee;“(iv) The commissioner of finance and administration or the commissioner of finance and administration’s designee;“(v) The director of the state division of health planning or equivalent;“(vi) The director of the office of e-health initiatives or equivalent;“(vii) The deputy commissioner of the bureau of TennCare or the deputy commissioner of the bureau of TennCare’s designee; and“(viii) The commissioner of intellectual and developmental disabilities or the commissioner of intellectual and developmental disabilities' designee.“(B) The committee shall include the following members to be appointed by the commissioner of finance and administration:“(i) Two (2) physician members, who may be appointed from lists of qualified persons submitted by interested medical organizations, including, but not limited to, the Tennessee Medical Association;“(ii) Two (2) members to represent hospitals, who may be appointed from lists of qualified persons submitted by interested hospital groups, including, but not limited to, the Tennessee Hospital Association and the Hospital Alliance of Tennessee;“(iii) One (1) pharmacist member, who may be appointed from lists of qualified persons submitted by interested pharmacist groups, including, but not limited to, the Tennessee Pharmacists Association;“(iv) Two (2) members to represent the health insurance industry;“(v) One (1) member to represent a hospital and medical service corporation;“(vi) One (1) member to represent a coalition of businesses who purchase health services;“(vii) One (1) member to represent a self-insured employer;“(viii) One (1) member to represent health care consumers; and“(ix) One (1) member to represent ambulatory surgical treatment centers.“(9) The commissioner shall consult with the interested groups listed in subdivision (c)(7) to determine qualified persons to fill the positions.“(10) The committee may appoint one (1) or more subcommittees to provide advice and recommendations related to the operations and use of the all payer claims database, including, but not limited to, advisory committees on:“(A) Research;“(B) Technology;“(C) Participation by health insurance issuers in the all payer claims database; and“(D) Such other matters as the committee may approve in its discretion.“(11) The members of the Tennessee health information committee appointed by the commissioner of finance and administration as provided in subdivision (b)(7)(B) shall serve one-year terms and shall be eligible for reappointment to subsequent terms; provided, however, that five (5) of the initial members shall serve an initial term of two (2) years. Vacancies shall be filled for any unexpired terms, and members shall serve until their successors are appointed. The initial term of such members shall be deemed to commence on July 1, 2009.”; and, in (d)(1), substituted “develop” for “collaborate with the Tennessee health information committee in developing” following “The commissioner”; redesignated former (2)(A) and (2)(A)(i) as present (2)(A)(i), and therein deleted “unless public release of reports is authorized by the Tennessee health information committee” following “database”, substituted “The information” for “Further, such information”, and deleted “; and”; in (2)(A)(ii), substituted “The commission may promulgate rules to authorize the public release of reports” for “Reports” and deleted “shall only be released pursuant to rules adopted by the commissioner subsequent to consultation with the Tennessee health information committee” at the end of the first sentence; in (2)(B), deleted “and after consultation with the Tennessee health information committee” following “understanding”; and, in (2)(C), substituted “in” for “within” following “nothing”.

Effective Dates. Acts 2018, ch. 968, § 5. May 16, 2018.

Cross-References. Confidentiality of public records, § 10-7-504.

Attorney General Opinions. T.C.A. § 56-2-125 is unconstitutional following the United States Supreme Court’s recent decision of Gobeille v. Liberty Mutual Ins. Co., 136 S. Ct. 936 (2016).  Consequently, the Department of Commerce and Insurance and the Department of Finance and Administration are allowed to stop the enforcement of T.C.A. § 56-2-125. OAG 16-42, 2016 Tenn. AG LEXIS 42 (12/7/2016).

56-2-126. Service contracts not to be construed as business of insurance.

  1. The marketing, sale, offering for sale, issuance, making, proposing to make and administration of a service contract shall not be construed to be the business of insurance and shall be exempt from regulation as insurance pursuant to this title.
    1. For purposes of this section, “service contract” means a contract or agreement for a separately stated consideration for a specific duration to perform the service, repair, replacement or maintenance of property or indemnification for service, repair, replacement or maintenance, for the operational or structural failure due to a defect in materials, workmanship, or normal wear and tear, with or without additional provisions for incidental payment of indemnity under limited circumstances, including, but not limited to, towing, rental, road hazard and emergency road service. “Service contract” includes motor vehicle extended service contracts and agreements. Service contracts may provide for the service, repair, replacement, or maintenance of property for damage resulting from power surges and accidental damage from handling.
      1. For the purposes of this section, “service contract” also means a contract or agreement that provides one (1) or more of the following:
        1. The repair or replacement of tires or wheels on a motor vehicle damaged as a result of coming into contact with road hazards;
        2. The removal of dents, dings, or creases on a motor vehicle that can be repaired using the process of paintless dent removal without affecting the existing paint finish and without replacing vehicle body panels, sanding, bonding, or painting;
        3. The repair of chips or cracks in, or the replacement of, motor vehicle windshields as a result of damage caused by road hazards; or
        4. The replacement of a motor vehicle key or key-fob in the event that the key or key-fob becomes inoperable or is lost or stolen.
      2. For purposes of subdivision (b)(2)(A), “road hazard” means a hazard that is encountered while driving a motor vehicle, which may include potholes, rocks, wood debris, metal parts, glass, plastic, curbs, or composite scraps.
  2. A contract excluded from the definition of a “pre-need funeral contract” pursuant to § 62-5-403(9)(C) is not a contract of insurance within the meaning of this title.

Acts 2011, ch. 71, § 1; 2017, ch. 90, § 1; 2018, ch. 623, § 1.

Compiler's Notes. Acts 2018, ch. 623, § 3 provided that the act, which amended this section, shall apply to contracts entered into or renewed on or after April 2, 2018.

Amendments. The 2017 amendment added (b)(2).

The 2018 amendment added (c).

Effective Dates. Acts 2017, ch. 90, § 2. April 4, 2017.

Acts 2018, ch. 623, § 3. April 2, 2018.

Part 2
Kinds of Insurance

56-2-201. Definitions of kinds of insurance.

Kinds of insurance are defined as follows:

  1. “Accident and health insurance” means insurance against bodily injury, disablement or death, by accident or accidental means, or the expense of bodily injury, disablement or death, against disablement or expense resulting from sickness, and every insurance pertaining thereto; providing for the mental and emotional welfare of an individual and members of the individual's family by defraying the cost of legal services; or providing aggregate or excess stop-loss coverage in connection with employee welfare benefit plans, managed care organizations participating in commercial plans or the TennCare program, or both, health maintenance organizations, long-term care facilities, physician-hospital organizations as defined in § 56-32-102 and provider aggregate or per-patient stop-loss protection insurance coverage as authorized by § 56-32-104;
  2. “Casualty insurance” includes vehicle insurance, disability insurance, and in addition is:
    1. “Boiler insurance,” which is insurance against any liability and loss or damage to property resulting from accidents to or explosion of boilers, pipes, pressure containers, machinery, or apparatus, and to make inspection of and issue certificates of inspection upon boilers, machinery and apparatus of any kind, whether or not insured;
    2. “Burglary and theft insurance,” which is insurance against loss or damage by burglary, theft, larceny, robbery, forgery, fraud, vandalism, malicious mischief, confiscation or wrongful conversion, disposal or concealment, or from any attempt of burglary, theft, larceny, robbery, forgery, fraud, vandalism, malicious mischief, confiscation or wrongful conversion, disposal or concealment; also insurance against loss of or damage to moneys, coins, bullion, securities, notes, drafts, acceptances or any other valuable papers or documents, resulting from any cause, except while in the custody or possession of and being transported by any carrier for hire or in the mail;
    3. “Collision insurance,” which is insurance against loss of or damage to any property of the insured resulting from collision of any other object with the property, but not including collision to or by elevators, or to or by vessels, craft, piers or other instrumentalities of ocean or inland navigation;
    4. “Credit insurance,” which is insurance against loss or damage resulting from failure of debtors to pay their obligations to the insured;
    5. “Elevator insurance,” which is insurance against loss or damage to any property of the insured resulting from the ownership, maintenance or use of elevators, except loss or damage by fire, and to make inspection of and issue certificates of inspection on elevators;
    6. “Glass insurance,” which is insurance against loss of or damage to glass and its appurtenances resulting from any cause;
    7. “Liability insurance,” which is insurance against legal liability for the death, injury, or disability of any person, or for damage to property; and insurance of medical, hospital, surgical and funeral benefits to persons injured, regardless of legal liability of the insured, when issued as an incidental coverage with or supplemental to liability insurance;
    8. “Livestock insurance,” which is insurance against loss of or damage to any domesticated or wild animal resulting from any cause;
    9. “Personal property floater,” which is insurance of individuals, by an all-risk type of policy commonly known as the “personal property floater,” against any and all kinds of loss of or damage to, or loss of use of, any personal property other than merchandise;
    10. “Professional liability insurance,” which is insurance against legal liability of the insured, and against loss, damage or expense incident to a claim of legal liability, and including any obligation of the insured to pay medical, hospital, surgical and funeral benefits to injured persons, regardless of legal liability of the insured, arising out of the death or injury of any person, or arising out of injury to the economic interest of any person as the result of negligence in rendering expert, fiduciary or professional service;
    11. “Water insurance,” which is insurance against loss of or damage to any property caused by the breakage or leakage of sprinklers, water pipes and other apparatus, or by water entering through leaks or openings in buildings, other than flood waters;
    12. “Workers' compensation and employer's liability insurance,” which is insurance of the obligations accepted by, imposed upon, or assumed by employers under law for death, disablement, or injury of employees; and
    13. Insurance against any other kind of loss, damage, or liability properly the subject of insurance and not within any other kind or kinds of insurance as defined in this section, if the insurance is not disapproved by the commissioner as being contrary to law or public policy;
  3. “Credit insurance” includes:
    1. “Credit accident and health insurance,” which means that form of insurance under which a borrower of money or a purchaser of goods is indemnified in connection with a specific loan or credit transaction against loss of time resulting from accident or sickness; and
    2. “Credit life insurance,” which means that form of insurance under which the life of a borrower of money or a purchaser of goods is insured in connection with a specified loan or credit transaction;
  4. “Life insurance” means insurance on human lives and insurance appertaining to human lives or connected with human lives. For the purposes of this title, the transacting of life insurance includes the granting of annuities, both with and without a life or mortality contingency or element, and endowment benefits, additional benefits in the event of death by accident or accidental means, additional benefits in the event of the total and permanent disability of the insured, and optional modes of settlement of proceeds;
    1. “Property insurance” means insurance against loss of or damage to real or personal property of every kind and interest in the real or personal property, from any or all hazards or causes, and against loss consequential upon the loss or damage;
    2. “Property insurance” includes, but is not limited to:
      1. Insurance against loss or damage to property and loss of use and occupancy by fire, lightning, storm, flood, frost, freezing, snow, hail, ice, weather or climatic conditions, including excess or deficiency of moisture, rain or rising of the waters of the ocean or its tributaries, drought, insects, vermin, forces of nature, smoke, smudge, riot, riot attending strike, strikes, sabotage, civil commotion, vandalism or malicious mischief or caused by wrongful conversion, disposal or concealment of a motor vehicle or aircraft, whether or not handled under a conditional sales contract or subject to chattel mortgage, civil war, rebellion, insurrection, invasion, bombardment, military or usurped power, or by any order of civil authorities meant to prevent the spread of conflagration or epidemic or catastrophe, explosion with no fire ensuing, except explosion by steam boilers or flywheels, but there may be insured explosion of pressure vessels, not including steam boilers of more than fifteen pounds (15 lbs.) pressure, in buildings designed and used solely for residential purposes by not more than four (4) families, explosion of any kind originating outside the insured building, or outside the building containing the property insured, and explosion of pressure vessels that do not contain steam or that are not operated with steam coils or steam jackets;
      2. Insurance against loss or damage by insects or disease to farm crops or products, and loss of rental value of land used in producing the crops or products;
      3. Insurance against accidental injury to sprinklers, pumps, water pipes, elevator tanks and cylinders, steam pipes and radiators, plumbing and its fixtures, ventilating, refrigerating, heating, lighting or cooking apparatus, or their connections, or conduits or containers of any gas, fluid, or other substance, and against loss or damage to property of the insured caused by the breakage or leakage thereof, or by water, hail, rain, sleet or snow seeping or entering through water pipes, leaks or openings in buildings;
      4. Insurance against loss or damage caused by railroad equipment, motor vehicles, airplanes, seaplanes, dirigibles or other aircraft;
      5. Insurance against loss of or damage to vessels, crafts, aircrafts, cars, automobiles and vehicles of every kind, as well as all goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, bullion, precious stones, securities, choses in action, evidence of debt, valuable papers, bottomry and respondentia interests therein, in respect to, appertaining to or in connection with, any and all risks or perils of navigation, transit, or transportation, including war risks, on or under any seas or other waters, on land or in the air, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting the being assembled, packed, crated, baled, compressed or similarly prepared for shipment or during any delays, storage, transshipment incident thereto, including marine builder's risks and all personal property floater risks, and persons or property in connection with or appertaining to a marine, inland marine, transit or transportation insurance, including liability for loss of or damage to either, arising out of or in connection with the construction, repair, operation, maintenance or use of the subject matter of the insurance, but not including life insurance or surety bonds, and precious stones, jewels, jewelry, gold, silver and other precious metals, whether used in business or trade, or otherwise, and whether in course of transportation or otherwise, and bridges, tunnels and other instrumentalities of transportation, and communication, excluding buildings, their furniture and furnishings, fixed contents and supplies held in storage, unless fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot and/or civil commotion, are the only hazards to be covered, and piers, wharves, docks and ships, excluding the risks of fire, tornado, sprinkler leakage, hail, explosion, earthquake, riot and/or civil commotion, and other aids to navigation and transportation, including dry docks and marine railways, against all risks;
      6. “Marine protection and indemnity insurance,” which means insurance against, or against legal liability of the insured for, loss, damage or expense arising out of, or incident to, the ownership, operation, chartering, maintenance, use, repair or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness or death or for loss of or damage to the property of another person; and
      7. Vehicle insurance;
    3. Matters set out in subdivision (5)(B) are not deemed to limit the scope of property insurance as defined in subdivision (5)(A), nor shall the fact that certain coverages coming within the scope of property insurance, as defined in subdivision (5)(A), are also defined as part of another kind of insurance be deemed to limit the scope of the definition of property insurance or the right of a property insurer to provide the coverage;
  5. “Surety insurance” includes:
    1. Credit insurance;
    2. “Fidelity insurance,” which is insurance guaranteeing the fidelity of persons holding positions of public or private trust;
    3. Guaranteeing the performance of contracts, and guaranteeing and executing bonds, undertakings, and contracts of suretyship;
    4. Indemnifying banks, bankers, brokers, financial or moneyed corporations or associations or other persons against loss, resulting from any cause, of bills of exchange, notes, bonds, securities, evidences of debts, deeds, mortgages, warehouse receipts, or other valuable papers, documents, money, precious metals and articles made from precious metals, jewelry, watches, necklaces, bracelets, gems, precious and semiprecious stones, including any loss while the items are being transported in armored motor vehicles, or by messenger, but not including any other risks of transportation or navigation; also against loss or damage to the insured's premises, or to the insured furnishings, fixtures, equipment, safes and vaults in safes, caused by burglary, robbery, theft, vandalism or malicious mischief, or any attempt of burglary, robbery, theft, vandalism or malicious mischief; and
    5. Insurance that guarantees the performance of any debt obligation of a public or private corporation; and
    1. “Vehicle insurance” means insurance against loss of or damage to any land vehicle or aircraft or any draft or riding animal or to property while contained therein or thereon, or being loaded or unloaded therein or therefrom, and against any loss, expense or liability for loss or damage to persons or property resulting from or incident to ownership, maintenance, or use of the vehicle or aircraft or animal;
    2. Insurance against accidental death or accidental injury to individuals, including the named insured, while in, entering, alighting from, adjusting, repairing, cranking, or caused by being struck by a vehicle, aircraft, or draft or riding animal, if the insurance is issued as part of insurance on the vehicle, aircraft, or draft or riding animal, shall be deemed to be vehicle insurance.

Acts 1951, ch. 212, § 1 (Williams, § 6107); T.C.A. (orig. ed.), § 56-306; Acts 1955, ch. 13, § 1; T.C.A. (orig. ed.), § 56-218; Acts 1984, ch. 582, § 1; 1986, ch. 504, § 1; 1988, ch. 948, § 1; 1994, ch. 888, § 1; 1995, ch. 221, § 1; 1996, ch. 780, § 1; 2008, ch. 831, § 14; 2012, ch. 798, § 17; 2013, ch. 409, § 2; 2016, ch. 724, § 1.

Compiler's Notes. Acts 2008, ch. 831, § 15, which amended the definition of “life insurance,” provided that the act shall apply to charitable gift annuities entered into on or after January 1, 2009.

Acts 2013, ch. 409, § 3 provided that the provisions contained in the act, which amended the definition of “accident and health insurance”, shall terminate on December 31, 2016, and the law in effect prior to the effective date of the act, May 16, 2013, shall be restored. However, Acts 2016, ch. 724, § 1 repealed § 3 of the 2013 act, thereby removing the termination date for the 2013 act so that the changes made by the 2013 act remain in effect.

Amendments. The 2013 amendment, substituted “long-term care facilities, physician-hospital organizations as defined in § 56-32-102 and provider aggregate or per-patient stop-loss protection insurance coverage as authorized by § 56-32-104” for “long-term care facilities and physician-hospital organizations as defined in § 56-32-102” at the end of the definition of “accident and health insurance”.

The 2016 amendment by Acts 2016, ch. 724, § 1 repealed the expiration provision that had existed for the 2013 amendment by 2013, ch. 409. See the Compiler’s Notes.

Cross-References. Joint underwriting/risk sharing, title 56, ch. 41.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, §§ 3, 133, 151.

Law Reviews.

Tort Liability for Intentional Acts of Family Members: Will Your Insurer Stand by You?, 68 Tenn. L. Rev. 1 (2000).

Torts — Premises Liability — Liability of Tennessee Business Owners for Third-Party Criminal Attacks, 68 Tenn. L. Rev. 141 (2000).

Attorney General Opinions. Stop-loss insurance to preferred provider organizations, OAG 94-017, 1994 Tenn. AG LEXIS 13 (2/16/94).

NOTES TO DECISIONS

1. Life Insurance.

None of the additional features mentioned in the definition of life insurance, such as accidental death or disability benefits, are to be characterized as life insurance under the code, unless the basic coverage is insurance on a human life not limited to accidental death. Equitable Life Assurance Co. v. Odle, 547 S.W.2d 939, 1977 Tenn. LEXIS 575 (Tenn. 1977).

Collateral References.

Construction of incontestable clause applicable to disability insurance. 13 A.L.R.3d 1383.

Exchange of labor by farmers as creating employment relationship for liability insurance purposes. 89 A.L.R.3d 834.

Liability insurance of garages, motor vehicle repair shops and sales agencies, and the like. 93 A.L.R.2d 1047.

Liability of hospital, or medical practitioner, under doctrine of strict liability in tort, or breach of warranty, for harm caused by drug, medical instrument, or similar device used in treating patient. 54 A.L.R.3d 258.

Liability of insurer for damages resulting from delay in passing upon an application for life insurance. 1 A.L.R.4th 1202.

Liability of physician or hospital in the performance of cosmetic surgery upon the face. 54 A.L.R.3d 1255.

Premises liability insurance: coverage as extending to liability for injuries or damage caused by product sold or rented by the insured and occurring away from the insured premises. 62 A.L.R.3d 889.

Validity, construction, and effect of assault and battery exclusion in liability insurance policy at issue. 44 A.L.R.5th 91.

What are “fixtures” within provision of property insurance policy expressly extending coverage to fixtures. 17 A.L.R.3d 1381.

What conditions constitute “disease” within terms of life, accident, disability, or hospitalization insurance policy. 61 A.L.R.3d 822.

What constitutes “one accident” or “one sickness” or related conditions or recurrences within provisions of health, accident, and disability insurance. 61 A.L.R.3d 884.

What constitutes “vandalism” or “malicious mischief” within meaning of insurance policy specifically extending coverage to losses from such causes. 56 A.L.R.5th 407.

56-2-202. Kinds of property insurance authorized.

  1. The company has the power generally to insure against loss by fire, earthquakes, storms, floods, explosions, except the explosions of the kind contemplated in § 56-19-108(5), riots, civil commotions, and any and all other damages on all kinds and species of property.
  2. This section shall apply to every insurance corporation heretofore or hereafter organized under the laws of this state.
  3. All policies of insurance heretofore issued by insurance corporations organized under the laws of this state insuring against loss from any cause included in the authorization in subsection (a) are validated, insofar as the corporation was without specific charter power to insure against those losses.

Acts 1875, ch. 142, § 10; Shan., § 2260; Code 1932, § 3973; Acts 1937, ch. 109, §§ 1-3; mod. C. Supp. 1950, § 3973 (Williams, §§ 3973, 3973.1, 3973.2); T.C.A. (orig. ed.), § 56-219.

Cross-References. Motor vehicles, endorsement of change in ownership upon title or registration, § 55-3-127.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 121.

Collateral References.

Construction of clause in fire policy for apportionment of loss where insured carries other insurance “whether concurrent or not.” 59 A.L.R.2d 552.

Coverage under all-risk insurance. 30 A.L.R.5th 170.

Temporary fire, wind, or hail insurance pending issuance of policy. 14 A.L.R.3d 568.

What constitutes “other insurance” within meaning of insurance policy provisions prohibiting insured from obtaining other insurance on the same property. 7 A.L.R.4th 494.

What constitutes “vandalism” or “malicious mischief” within meaning of insurance policy specifically extending coverage to losses from such causes. 56 A.L.R.5th 407.

56-2-203. Life insurance — Annuity or contract loans — Trusts accepted and executed.

The company has the further right to insure the lives of persons, and engage in the general business of life insurance, and, coupled with that right, the right to grant and sell annuity, or contract loans based on life annuity, with benefit of survivorship, and accept and execute all legal trusts that may be confided to it.

Acts 1875, ch. 142, § 10; Shan., § 2261; Code 1932, § 3974; T.C.A. (orig. ed.), §§ 56-206, 56-220.

Cross-References. Life, endowment or annuity contracts of life insurance companies, § 35-3-113.

Standard nonforfeiture law for individual deferred annuities, §§ 56-36-10156-36-112.

Collateral References.

Insurable interest of brother or sister in life of sibling. 60 A.L.R.3d 98.

Right of life insurer to restitution of payments made because of fraud as to death of insured. 59 A.L.R.2d 1107.

56-2-204. Casualty, accident, sickness, theft and marine insurance.

The company also has the power to insure:

  1. Against all accidents:
    1. To property in transit; and
    2. To persons traveling or otherwise;
  2. Against disabilities to persons by disease or sickness, or other bodily infirmities;
  3. Against thefts of property;
  4. Ships, steamboats, and other craft; and
  5. Freight and sailors' wages, including all marine risks.

Acts 1875, ch. 142, § 10; 1889, ch. 224, § 1; Shan., § 2262; mod. Code 1932, § 3975; T.C.A. (orig. ed.), §§ 56-207, 56-221.

Cross-References. False or fraudulent insurance claims, § 39-14-133.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 151.

NOTES TO DECISIONS

1. Cotton in Warehouse Covered by Marine Policy.

A marine policy, which contained a fire clause insuring goods on shore prior to shipment” for 10 days, covered cotton in warehouse for compression for shipment by a railroad carrier. Lancaster Mills v. Merchants' Cotton-Press & Storage Co., 89 Tenn. 1, 14 S.W. 317, 1890 Tenn. LEXIS 22, 24 Am. St. Rep. 586 (1890).

Collateral References.

Death or injury from sunstroke as accident or result of accidental means within terms of accident provision of insurance policy. 36 A.L.R.2d 1090.

Death or injury from taking illegal drugs or narcotics as accidental or result of accidental means within insurance coverage. 32 A.L.R.5th 629.

Death or injury resulting from shock, fright, or other “psychic trauma,” as within coverage of accident policy or accident provisions of life policy. 93 A.L.R.2d 578.

56-2-205. Insurance company may exercise one or all branches of authorized business.

The corporation may, at its option, exercise one (1) or more or all of the branches of business in which it is authorized to engage.

Acts 1875, ch. 142, § 10; Shan., § 2263; mod. Code 1932, § 3976; T.C.A. (orig. ed.), §§ 56-208, 56-222.

56-2-206. Companies on Lloyd's plan authorized to do business.

  1. Associations of individuals, citizens of the United States, whether organized within this state or elsewhere within the United States, formed on the plan known as Lloyd's, whereby each associate underwriter becomes liable for a proportionate part of the whole amount insured by policy, may be authorized to transact insurance other than life in this state, in like manner and upon the same terms and conditions as are required of and imposed upon insurance companies of the United States, or one (1) of the states.
  2. All Lloyd's, whether organized within this state or elsewhere in the United States, not having an actual, paid-up cash capital, shall make the same deposit, and upon the same terms and conditions as is required by § 56-2-405 of foreign insurance companies incorporated or associated under the laws of any government or state other than the United States or one (1) of the states.

Acts 1895, ch. 160, § 15; Shan., § 3298; Code 1932, § 6114; T.C.A. (orig. ed.), §§ 56-210, 56-224.

Cross-References. Funds required in order to qualify for authority to transact business, § 56-2-405.

Investing in obligations of Public Housing Authority authorized, § 35-3-115.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 78.

Collateral References.

Reciprocal or interinsurance exchanges, applicability to, of general insurance laws. 141 A.L.R. 795.

56-2-207. Reinsurance contracts — Liability of ceding and assuming insurers.

    1. Every insurer authorized to do an insurance, surety or bonding business in this state, called the “ceding insurer” in this title, may, subject to the limitations of this section, reinsure its risks and policy liabilities in any other insurer, called the “assuming insurer” in this title, with the effects prescribed in this section; but no prohibition or limitation contained in this section shall invalidate the contract or reinsurance as between the parties.
    2. No credit shall be allowed, as an admitted asset or as a deduction from liability, to any ceding insurer for reinsurance made, ceded, renewed, or otherwise becoming effective after June 12, 1947, unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contract or contracts reinsured without diminution, because of the insolvency of the ceding insurer nor unless, under the contract or contracts of reinsurance, the liability for the reinsurance is assumed by the assuming insurer or insurers as of the same effective date.
    3. The reinsurance agreement may provide that the liquidator or receiver or statutory successor of an insolvent ceding insurer shall give written notice of the pendency of a claim against the insolvent ceding insurer on the policy or bond reinsured, within a reasonable time after the claim is filed in the insolvency proceeding and that during the pendency of the claim, any assuming insurer may investigate the claim and interpose, at its own expense, in the proceeding where the claim is to be adjudicated, any defense or defenses that it may deem available to the ceding company or its liquidator or receiver or statutory successor.
    4. The expense thus incurred by the assuming insurer shall be chargeable, subject to court approval, against the insolvent ceding insurer as part of the expense of liquidation to the extent of a proportionate share of the benefit, which may accrue to the ceding insurer, solely as a result of the defense undertaken by the assuming insurer.
  1. Where two (2) or more assuming insurers are involved in the same claim and a majority in interest elect to interpose defense to the claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement, as though the expense had been incurred by the ceding company.
  2. Notwithstanding anything in this section to the contrary, a risk retention group may not reinsure its risks in another risk retention group unless all of the members of the ceding risk retention group are eligible for membership in the assuming risk retention group.

Acts 1947, ch. 154, § 1; C. Supp. 1950, § 6105.1 (Williams, § 6459.70); T.C.A. (orig. ed.), §§ 56-211, 56-225; Acts 2014, ch. 559, § 8.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 78.

Collateral References.

Validity, construction, and application of Uniform Insurers Liquidation Act. 44 A.L.R.5th 683.

56-2-208. Credit for reinsurance — Reduction from liability for reinsurance.

  1. The purpose of §§ 56-2-207, 56-2-208, and 56-2-209 is to protect the interest of the insureds, claimants, ceding insurers, assuming insurers and the public generally. It is the intent of the general assembly to ensure adequate regulation of insurers and reinsurers and adequate protection for those to whom insurers and reinsurers owe obligations. Upon the insolvency of a non-United States insurer or reinsurer that provides security to fund its United States obligations in accordance with §§ 56-2-207, 56-2-208 and 56-2-209, the assets representing the security shall be maintained in the United States and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be distributed, in accordance with the insurance laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic United States insurance companies. The general assembly declares that the matters contained in §§ 56-2-207, 56-2-208, and 56-2-209 are fundamental to the business of insurance in accordance with 15 U.S.C. §§ 1011 and 1012.
      1. Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded only when the insurer meets one (1) or more of the requirements set out in subdivisions (b)(2)-(7). However, the commissioner may adopt, by rule pursuant to § 56-2-209(g), specific additional requirements relating to or setting forth:
        1. The valuation of assets or reserve credits;
        2. The amount and forms of security supporting reinsurance arrangements described in § 56-2-209(g); and
        3. The circumstances pursuant to which credit will be reduced or eliminated.
      2. Credit shall be allowed under subdivision (b)(2), (b)(3), or (b)(4) only in respect to cessions of those kinds or classes of business which the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of the United States branch of a non-United States assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. Credit shall be allowed under subdivision (b)(4) or (b)(5) only if the applicable requirements of subdivision (b)(8) have been satisfied.
    1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state.
    2. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited by the commissioner as a reinsurer in this state. In order to be eligible for accreditation, a reinsurer must:
      1. File with the commissioner evidence of its submission to this state's jurisdiction;
      2. Submit to this state's authority to examine its books and records;
      3. Be licensed to transact insurance or reinsurance in at least one (1) state, or in the case of a United States branch of a non-United States assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one (1) state;
      4. File annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement; and
      5. Demonstrate to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders in an amount that is not less than twenty million dollars ($20,000,000) and its accreditation has not been denied by the commissioner within ninety (90) days after submission of its application.
    3. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled and licensed in, or in the case of a United States branch of a non-United States assuming insurer, is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this title, and the assuming insurer or United States branch of a non-United States assuming insurer:
      1. Maintains a surplus as regards policyholders in an amount of not less than twenty million dollars ($20,000,000); provided, that the requirement in this subdivision (b)(4)(A) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system; and
      2. Submits to the authority of this state to examine its books and records.
      1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution, as defined in § 56-2-209(d), for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest. To enable the commissioner to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners (NAIC) annual statement form by licensed insurers. The assuming insurer shall submit to an examination of its books and records by the commissioner and bear the expense of such examination.
      2. Credit for reinsurance shall not be granted under this subdivision (b)(5) unless the form of the trust and any amendments to the trust have been approved by:
        1. The commissioner of the state where the trust is domiciled; or
        2. The commissioner of another state that, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.
      3. The following requirements apply to the following categories of assuming insurer:
        1. The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars ($20,000,000), except as provided in subdivision (b)(5)(C)(ii);
        2. At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three (3) full years, the commissioner with principal regulatory oversight of the trust may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall consider all material risk factors, including, when applicable, the lines of business involved, the stability of the incurred loss estimates and the effect of surplus requirements on the assuming insurer's liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount less than thirty percent (30%) of the assuming insurer's liabilities attributable to reinsurance ceded by the United States ceding insurers covered by the trust;
        3. (a)  In the case of a group including incorporated and individual unincorporated underwriters:
          1. (iii)  (a)  In the case of a group including incorporated and individual unincorporated underwriters:
            1. For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after January 1, 1993, the trust shall consist of a trusteed account in an amount not less than the respective underwriters' several liabilities attributable to business ceded by United States domiciled ceding insurers to any underwriter of the group;
            2. For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed on or after that date, notwithstanding §§ 56-2-207, 56-2-208, and 56-2-209, the trust shall consist of a trusteed account in an amount not less than the respective underwriters' several insurance and reinsurance liabilities attributable to business written in the United States; and
            3. In addition to the trusts set out in this subdivision (b)(5)(C)(iii)(a )(3 ), the group shall maintain in trust a trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States domiciled ceding insurers of any member of the group for all years of account; and
          2. The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as are the unincorporated members; and
          3. Within ninety (90) days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the commissioner an annual certification by the group's domiciliary regulator of the solvency of each underwriter member; or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group; and
        4. In the case of a group of incorporated insurers under common administration, the group shall:
          1. Have continuously transacted an insurance business outside the United States for at least three (3) years immediately prior to making application for accreditation;
          2. Maintain aggregate policyholders surplus of ten billion dollars ($10,000,000,000);
          3. Maintain a trust fund in an amount not less than the group's several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group;
          4. Maintain a joint trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States domiciled ceding insurers of any member of the group as additional security for the liabilities; and
          5. Within ninety (90) days after its financial statements are due to be filed with the group's domiciliary regulator, make available to the commissioner an annual certification of each underwriter member's solvency by the member's domiciliary regulator and financial statements of each underwriter member of the group prepared by its independent public accountant.
      4. The form of the trust and any trust amendments also shall be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in its trustees for the benefit of the assuming insurer's United States ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the commissioner.
      5. The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust. No later than February 28 of each year, the trustee of the trust shall report to the commissioner in writing the balance of the trust and list the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust will not expire prior to the following December 31.
        1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the commissioner as a reinsurer in this state and secures its obligations in accordance with the requirements of this subdivision (b)(6).
        2. Any information submitted by an assuming insurer who is applying for certification as a reinsurer pursuant to subdivision (b)(6)(A)(i) and any information submitted to the commissioner pursuant to this section or any rule promulgated under this section by an assuming insurer who has been certified as a reinsurer pursuant to subdivision (b)(6)(A)(i) is confidential by law, is not open for inspection by members of the public under § 10-7-503 or § 56-1-602, is not subject to subpoena, and is not subject to discovery or admissible in evidence in any private civil action. However, the commissioner may use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner's official duties and may share the documents, materials, or other information in accordance with the procedures set forth in § 56-11-108(c)-(f).
      1. In order to be eligible for certification, the assuming insurer shall meet the following requirements:
        1. The assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to subdivision (b)(6)(D);
        2. The assuming insurer must maintain a minimum capital and surplus, or its equivalent, in an amount to be determined by the commissioner pursuant to rules promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5;
        3. The assuming insurer must maintain financial strength ratings from two (2) or more rating agencies deemed acceptable by the commissioner pursuant to rules promulgated in accordance with the Uniform Administrative Procedures Act;
        4. The assuming insurer must agree to submit to the jurisdiction of this state, appoint the commissioner as its agent for service of process in this state, and agree to provide security for one hundred percent (100%) of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment;
        5. The assuming insurer must agree to meet applicable information filing requirements as determined by the commissioner, both with respect to an initial application for certification and on an ongoing basis; and
        6. The assuming insurer must satisfy any other requirements for certification deemed relevant by the commissioner.
      2. An association including incorporated and individual unincorporated underwriters may be a certified reinsurer. In order to be eligible for certification, in addition to satisfying requirements of subdivision (b)(6)(B):
        1. The association shall satisfy its minimum capital and surplus requirements through the capital and surplus equivalents (net of liabilities) of the association and its members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the association or any of its members, in an amount determined by the commissioner to provide adequate protection;
        2. The incorporated members of the association shall not be engaged in any business other than the underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association's domiciliary regulator as are the unincorporated members; and
        3. Within ninety (90) days after its financial statements are due to be filed with the association's domiciliary regulator, the association shall provide to the commissioner an annual certification by the association's domiciliary regulator of the solvency of each underwriter member; or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the association.
        1. The commissioner shall create and publish a list of qualified jurisdictions, under which an assuming insurer licensed and domiciled in such jurisdiction is eligible to be considered for certification by the commissioner as a certified reinsurer.
        2. In order to determine whether the domiciliary jurisdiction of a non-United States assuming insurer is eligible to be recognized as a qualified jurisdiction, the commissioner shall evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, both initially and on an ongoing basis, and consider the rights, benefits and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States. A qualified jurisdiction must agree to share information and cooperate with the commissioner with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as a qualified jurisdiction if the commissioner has determined that the jurisdiction does not adequately and promptly enforce final United States judgments and arbitration awards. Additional factors may be considered at the commissioner's discretion.
        3. A list of qualified jurisdictions shall be published through the NAIC committee process. The commissioner shall consider this list in determining qualified jurisdictions. If the commissioner approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the commissioner shall provide thoroughly documented justification in accordance with the criteria established in rules promulgated in accordance with the Uniform Administrative Procedures Act.
        4. United States jurisdictions that meet the requirement for accreditation under the NAIC financial standards and accreditation program shall be recognized as qualified jurisdictions.
        5. If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the commissioner has the discretion to suspend the reinsurer's certification indefinitely, in lieu of revocation.
      3. The commissioner shall assign a rating to each certified reinsurer, giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the commissioner pursuant to rules promulgated in accordance with the Uniform Administrative Procedures Act. The commissioner shall publish a list of all certified reinsurers and their ratings.
        1. A certified reinsurer shall secure obligations assumed from the United States ceding insurers under this subdivision (b)(6) at a level consistent with its ratings, as specified in rules promulgated by the commissioner in accordance with the Uniform Administrative Procedures Act.
        2. In order for a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form acceptable to the commissioner and consistent with § 56-2-209, or in a multi-beneficiary trust in accordance with subdivision (b)(5), except as otherwise provided in this subdivision (b)(6).
        3. If a certified reinsurer maintains a trust to fully secure its obligations subject to subdivision (b)(5), and chooses to secure its obligations incurred as a certified reinsurer in the form of a multi-beneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this subdivision (b)(6) or comparable laws of other United States jurisdictions and for its obligations subject to subdivision (b)(5). It shall be a condition to grant the certification under this subdivision (b)(6) that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the commissioner with principal regulatory oversight of each such trust account, to fund, upon termination of any such trust account, out of the remaining surplus of such trust any deficiency of any other such trust account.
        4. The minimum trusteed surplus requirements provided in subdivision (b)(5) are not applicable to a multi-beneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this subdivision (b)(6), except that such trust shall maintain a minimum trusteed surplus of ten million dollars ($10,000,000).
        5. With respect to obligations incurred by a certified reinsurer under this subdivision (b)(6), if the security is insufficient, the commissioner shall reduce the allowable credit by an amount proportionate to the deficiency, and has the discretion to impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer's obligations will not be paid in full when due.
        6. (a)  For purposes of this subdivision (b)(6), a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred percent (100%) of its obligations.
          1. (vi)  (a)  For purposes of this subdivision (b)(6), a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred percent (100%) of its obligations.
          2. As used in this subdivision (b)(6), “terminated” refers to revocation, suspension, voluntary surrender, or inactive status.
          3. If the commissioner continues to assign a higher rating as permitted by other provisions of this section, this subdivision (b)(6)(F)(vi) does not apply to a certified reinsurer in active status or to a reinsurer whose certification has been suspended.
      4. If an applicant for certification has been certified as a reinsurer in an NAIC accredited jurisdiction, the commissioner has the discretion to defer to that jurisdiction's certification, and has the discretion to defer to the rating assigned by that jurisdiction, and such assuming insurer shall be considered to be a certified reinsurer in this state.
      5. A certified reinsurer that ceases to assume a new business in this state may request to maintain its certification in inactive status in order to continue to qualify for a reduction in security for its in-force business. An inactive certified reinsurer shall continue to comply with all applicable requirements of this subdivision (b)(6), and the commissioner shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.
    4. Credits shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of any of subdivisions (b)(2)-(6), but only with respect to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law, rule, or regulation of that jurisdiction.
      1. If the assuming insurer is not licensed, accredited or certified to transact insurance or reinsurance in this state, the credit permitted by subdivisions (b)(4) and (5) shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:
        1. That, in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, shall comply with all requirements necessary to give the court jurisdiction, and shall abide by the final judgment of the court or of any appellate court in the event of an appeal; and
        2. To designate the commissioner or a designated attorney to receive service of process in any action, suit or proceeding instituted by or on behalf of the ceding company.
      2. This subdivision (b)(8) shall not prohibit or otherwise prevent the parties to a reinsurance agreement from arbitrating disputes, if such an obligation is created in the agreement between the parties.
    5. If the assuming insurer does not meet the requirements of subdivision (b)(2), (b)(3), or (b)(4), the credit permitted by subdivision (b)(5) or (b)(6) shall not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:
      1. Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by subdivision (b)(5)(C), or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund;
      2. The assets shall be distributed by and claims shall be filed with and valued by the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies;
      3. If the commissioner with regulatory oversight determines that assets of the trust fund or any part thereof are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part thereof shall be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement; and
      4. The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subdivision (b)(9).
      1. If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the commissioner may suspend or revoke the reinsurer's accreditation or certification.
      2. The commissioner must give the reinsurer notice and an opportunity for hearing in accordance with the Uniform Administrative Procedures Act. The suspension or revocation may not take effect until after the commissioner's order or hearing, unless:
        1. The reinsurer waives its right to hearing;
        2. The commissioner's order is based on regulatory action by the reinsurer's domiciliary jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to transact insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying state of the reinsurer under subdivision (b)(6)(F); or
        3. The commissioner finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the commissioner's action.
      3. While a reinsurer's accreditation or certification is suspended, no reinsurance contract issued or renewed after the effective date of the suspension qualifies for credit, except to the extent that the reinsurer's obligations under the contract are secured in accordance with § 56-2-209. If a reinsurer's accreditation or certification is revoked, no credit for reinsurance may be granted after the effective date of the revocation, except to the extent that the reinsurer's obligations under the contract are secured in accordance with subdivision (b)(6)(E) or § 56-2-209.
    6. Concentration Risk.
      1. A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the commissioner within thirty (30) days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds fifty percent (50%) of the domestic ceding insurer's last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, are likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.
      2. A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the commissioner within thirty (30) days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than twenty percent (20%) of the ceding insurer's gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

Acts 1947, ch. 154, § 2; 1949, ch. 105, § 1; C. Supp. 1950, § 6105.2 (Williams, § 6459.71); T.C.A. (orig. ed.), §§ 56-212; 56-226; Acts 1985, ch. 252, § 1; 1993, ch. 253, § 8; 1994, ch. 585, §§ 1, 2; 2016, ch. 735, § 6; 2018, ch. 873, §§ 4, 5.

Compiler's Notes. Acts 1985, ch. 107, § 6 provided that nothing in that act shall repeal or supersede this section. Chapter 107 is compiled primarily as §§ 56-7-90356-7-913.

Amendments. The 2016 amendment rewrote the section which read, “Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subdivision (1), (2), (3), (4) or (5). If an insurer is meeting the requirements of subdivision (3) or (4), the requirements of subdivision (6) must also be met.“(1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state;“(2) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state. An accredited reinsurer is one that:“(A) Files with the commissioner evidence of its submission to this state’s jurisdiction;“(B) Submits to this state’s authority to examine its books and records;“(C) Is licensed to transact insurance or reinsurance in at least one (1) state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one (1) state;“(D) Files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement; and either:“(i) Maintains a surplus as regards policyholders in an amount that is not less than twenty million dollars ($20,000,000) and whose accreditation has not been denied by the commissioner within ninety (90) days of its submission; or“(ii) Maintains a surplus as regards policyholders in an amount that is not less than twenty million dollars ($20,000,000) and whose accreditation has been approved by the commissioner;“(E) No credit shall be allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the commissioner after notice and hearing;“(3)(A) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled and licensed in, or in the case of a United States branch of an alien assuming insurer is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this title, and the assuming insurer or United States branch of an alien assuming insurer:“(i) Maintains a surplus as regards policyholders in an amount of not less than twenty million dollars ($20,000,000); and“(ii) Submits to the authority of this state to examine its books and records;“(B) Provided, that the requirement of subdivision (3)(A)(i) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system;“(4)(A) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution, as defined in § 56-2-209(d) , for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners (NAIC) annual statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund. In the case of a single assuming insurer, the trust shall consist of a trustee account representing the assuming insurer’s liabilities attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars ($20,000,000). In the case of a group including incorporated and individual unincorporated underwriters, the trust shall consist of a trusteed account representing the group’s liabilities attributable to business written in the United States and, in addition, the group shall maintain a trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States ceding insurers of any member of the group; the incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of solvency regulation and control by the group’s domiciliary regulator as are the unincorporated members; and the group shall make available to the commissioner an annual certification of the solvency of each underwriter by the group’s domiciliary regulator and its independent public accountants;“(B) In the case of a group of incorporated insurers under common administration which complies with the filing requirements contained in subdivision (4)(A), and that has continuously transacted an insurance business outside the United States for at least three (3) years immediately prior to making application for accreditation, and submits to this state’s authority to examine its books and records and bears the expense of the examination, and that has an aggregate policyholders surplus of ten billion dollars ($10,000,000,000), the trust shall be in an amount equal to the group’s several liabilities attributable to business ceded by United States ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group; plus the group shall maintain a joint trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly and exclusively for the benefit of United States ceding insurers of any member of the group as additional security for the liabilities, and each member of the group shall make available to the commissioner an annual certification of the member’s solvency by the member’s domiciliary regulator and its independent public accountant;“(C) The trust shall be established in a form approved by the commissioner. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the commissioner. The trust described in this subdivision (4) must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust;“(D) No later than February 28 of each year, the trustees of the trust shall report to the commissioner in writing setting forth the balance of the trust and listing the trust’s investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31;“(5) Credits shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subdivision (1), (2), (3) or (4), but only with respect to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction; and“(6) If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, the credit permitted by subdivisions (3) and (4) shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:“(A) That, in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give the court jurisdiction, and will abide by the final decision of the court or of any appellate court in the event of an appeal; and“(B) To designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company. This subdivision (6)(B) is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.”

The 2018 amendment redesignated the existing language of (b) as (b)(1)(A) and (b)(1)(B); in the introductory language of (b)(1)(A), substituted “insurer” for “reinsurer” preceding “meets”, and added the present last sentence; added present (b)(1)(A)(i) through (b)(1)(A)(iii); and added (b)(6)(A)(ii).

Effective Dates. Acts 2016, ch. 735, § 10. April 7, 2016.

Acts 2018, ch. 873, § 18. May 3, 2018.

56-2-209. Assuming insurers — Determination of financial condition.

    1. An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of § 56-2-208 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer. However, the commissioner may adopt by rule pursuant to subsection (g) specific additional requirements relating to or setting forth:
      1. The valuation of assets or reserve credits;
      2. The amount and forms of security supporting reinsurance arrangements described in subsection (g); and
      3. The circumstances pursuant to which credit will be reduced or eliminated.
    2. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations under the contract, if the security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer, or, in the case of a trust, held in a qualified United States financial institution. This security may be in the form of:
      1. Cash;
      2. Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners, including those deemed exempt from filing as defined by the Purposes and Procedures Manual of the Securities Valuation Office, and qualifying as admitted assets;
      3. Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution no later than December 31 of the year for which filing is being made, and in the possession of the ceding company on or before the filing date of its annual statement; or
      4. Any other form of security acceptable to the commissioner.
  1. Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance, or confirmation, shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs.
  2. For purposes of subdivision (a)(3), a “qualified United States financial institution” means an institution that:
    1. Is organized or  licensed, in the case of a United States office of a foreign banking organization, under the laws of the United States or any state in the United States;
    2. Is regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and
    3. Has been determined by either the commissioner, or the Securities Valuation Office of the National Association of Insurance Commissioners, to meet the standards of financial condition and standing considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner.
  3. For purposes of those provisions of this chapter specifying those institutions that are eligible to act as a fiduciary of a trust, “qualified United States financial institution” means an institution that:
    1. Is organized or  licensed, in the case of a United States branch or agency office of a foreign banking organization, under the laws of the United States or any state and has been granted authority to operate with fiduciary powers; and
    2. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.
  4. The commissioner may adopt rules and regulations implementing this section and § 56-2-208. The rules and regulations shall be promulgated pursuant to the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
  5. This section and § 56-2-208 apply to all cessions after July 1, 1993, under reinsurance agreements that have had an inception, anniversary, or renewal date not less than six (6) months after July 1, 1993.
    1. The commissioner is further authorized to promulgate rules applicable to reinsurance arrangements described in this subdivision (g)(1) relating to:
      1. Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits;
      2. Universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period;
      3. Variable annuities with guaranteed death or living benefits;
      4. Long-term care insurance policies; or
      5. Other life and health insurance and annuity products as to which the commissioner adopts regulatory requirements with respect to credit for reinsurance.
    2. A rule promulgated pursuant to subdivision (g)(1)(A) or (g)(1)(B) may apply to any treaty containing:
      1. Policies issued on or after January 1, 2015; or
      2. Policies issued prior to January 1, 2015, if risk pertaining to such pre-2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.
    3. A rule promulgated pursuant to this subsection (g) may require the ceding insurer, in calculating the amounts or forms of security required to be held under rules promulgated under this authority, to use the Valuation Manual adopted by the National Association of Insurance Commissioners (NAIC) under Section 11B(1) of the NAIC Standard Valuation Law, including all amendments adopted by the NAIC and in effect on the date as of which the calculation is made, to the extent applicable.
    4. A rule promulgated pursuant to this subsection (g) does not apply to cessions to an assuming insurer that:
      1. Is certified in this state or certified in a minimum of five (5) other states; or
      2. Maintains at least two hundred and fifty million dollars ($250,000,000) in capital and surplus, determined in accordance with the NAIC Accounting Practices and Procedures Manual, including all amendments to such manual that are adopted by the NAIC, excluding the impact of any permitted or prescribed practices; and is:
        1. Licensed in at least twenty-six (26) states; or
        2. Licensed in at least ten (10) states, and licensed or accredited in a total of at least thirty-five (35) states.
    5. The authority to promulgate rules pursuant to this subsection (g) does not limit the commissioner's authority to adopt rules pursuant to subsection (e). All rules under this subsection (g) must be promulgated in accordance with the Uniform Administrative Procedures Act.

Acts 1947, ch. 154, § 3; C. Supp. 1950, § 6105.3 (Williams, § 6459.72); T.C.A. (orig. ed.), §§ 56-213, 56-227; Acts 1993, ch. 253, § 8; 2016, ch. 735, § 7; 2018, ch. 873, §§ 6, 7.

Amendments. The 2016 amendment, in (a), substituted “An asset or a reduction” for “A reduction” at the beginning of the first sentence, substituted “ceding insurer. The” for “ceding insurer, and the” later in the same sentence, and deleted “as defined in subsection (d)” following “qualified United States financial institution”; in (a)(2), inserted “, including those deemed exempt from filing as defined by the Purposes and Procedures Manual of the Securities Valuation Office,” following “National Association of Insurance Commissioners”; and, in (a)(4), substituted “financial institution” for “institution, as defined in subsection (c),”.

The 2018 amendment redesignated the former first sentence of (a) as present (a)(1), added the present introductory clause  in (a)(1) and (a)(1)(A)-(a)(1)(C); redesignated the former second sentence and introductory clause in (a) as present (a)(2); redesignated former (a)(1)-(4) as present (a)(2)(A)-(D); and added (g).

Effective Dates. Acts 2016, ch. 735, § 10. April 7, 2016.

Acts 2018, ch. 873, § 18. May 3, 2018.

56-2-210. Responsibilities and obligations of limited credit life and credit accident and health reinsurer.

  1. As used in this section, “limited credit life and credit accident and health reinsurer” means a domestic credit life and credit accident and health reinsurer that:
    1. Reinsures only credit life insurance or credit accident and health insurance as defined in § 56-2-201, or both, in the manner provided for in § 56-2-114(b);
    2. Has been authorized by the commissioner to do so in Tennessee and is not so authorized in any other state; and
    3. Secures all of its reinsurance reserve liabilities that have been assumed under a reinsurance agreement that has been approved by the commissioner with funds withheld or maintained in a trust fund that complies with §§ 56-2-207, 56-2-208 and 56-2-209 and in an amount that is not less than one hundred ten percent (110%) of the amount of the liabilities assumed.
    1. The responsibilities and obligations of a limited credit life and credit accident and health reinsurer under this title shall be modified as set out in this section. A limited credit life and credit accident and health reinsurer shall demonstrate its compliance with the requirements in subsection (a) in the annual statement filed with the commissioner for the preceding year and shall maintain assets to secure the liabilities in the percentage relationship at all times. In determining compliance with this requirement, the commissioner shall value securities in the manner prescribed in §§ 56-3-113 and 56-3-114, and shall take into account only the securities that constitute admitted assets under chapter 3, part 3 of this title, and § 56-1-405.
    2. A company may not be a limited credit life and credit accident and health reinsurer during any period in which it is an affiliate of an insurer. In determining whether a company is an affiliate, tests provided for in § 56-11-101 shall be applied to determine a company's status.
  2. Notwithstanding any contrary provision in this title, a limited credit life and credit accident and health reinsurer shall be excused from:
    1. Filing personal financial statements to accompany insurance holding company forms under § 56-11-105;
    2. Filing any audited financial statements pursuant to rules authorized by § 56-1-501(h);
    3. Filing any risk-based capital reports under chapter 46 of this title;
    4. Filing any management discussion and analysis;
    5. Filing with respect to material transactions under §§ 56-10-301 — 56-10-303;
    6. Filing any actuarial certification;
    7. Any filing of its annual statement or quarterly statement with the National Association of Insurance Commissioners; and
    8. Filing with respect to extraordinary dividends under § 56-11-106(b).
  3. The commissioner is excused from any obligation to perform regular examination of a limited credit life and credit accident and health reinsurer under § 56-1-408, but shall retain the power to make an examination of any accounts, records, files, documents, and transactions pertaining to insurance of the limited credit life and credit disability reinsurer whenever the commissioner deems it prudent to do so under § 56-1-409.
  4. A limited credit life and credit accident and health reinsurer shall file with the commissioner copies of all reinsurance agreements, including amendments to the agreements, to which the reinsurer is a party. The agreement or amendment shall not be effective until and unless the agreement or amendment is approved by the commissioner; provided, however, that the agreement or amendment shall be deemed approved if the commissioner does not disapprove the agreement or amendment in writing within thirty (30) days after the reinsurer files a copy of the agreement or amendment with the commissioner.
  5. The commissioner may approve a merger in which a limited credit life and credit accident insurance company is a constituent party without holding the otherwise required hearing on a merger of a limited credit life and credit accident and health reinsurer with another entity, unless the requirement of a hearing under § 56-10-104(b) applies to another party to the merger.
  6. The commissioner may permit an applicant to seek a certificate of authority pursuant to a simplified and abbreviated application form under which the company seeking authority from the commissioner to engage in the business of being a limited credit life and credit accident and health reinsurer may apply for a certificate of authority to engage in the business.
  7. This section shall apply to all reports and documents required to be filed after December 31, 2000.

Acts 2001, ch. 118, § 1.

Part 3
Rules and Regulations

56-2-301. Promulgation of rules and regulations.

  1. The commissioner is authorized to promulgate rules and regulations not in conflict with this section and §§ 56-2-101, 56-2-103, 56-2-113 — 56-2-115, and 56-2-201 for the purpose of implementing those sections so as to regulate the writing of the various kinds and types of insurance provided for in those sections.
  2. The commissioner is authorized to promulgate rules and regulations to allow for the filing of documents with the commissioner pursuant to this title through a designated filing depository.
  3. Regulations promulgated pursuant to this section shall have the same force and effect of law.

Acts 1955, ch. 13, § 1; T.C.A., §§ 56-308, 56-216; Acts 2003, ch. 215, §§ 1, 2.

56-2-302. Notice of hearing on issuance of cease and desist order.

Whenever the commissioner determines that a company, corporation, association, person, or entity of whatever nature is violating or is about to violate § 56-2-105, the commissioner may issue a notice of hearing and charges requiring the company, corporation, association, person, or entity of whatever nature to show cause why an order should not issue requiring the person or entity to cease and desist the unauthorized business of insurance in this state.

Acts 1993, ch. 253, § 16.

56-2-303. Hearings.

Any hearing conducted under this part shall be conducted pursuant to the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1993, ch. 253, § 16.

56-2-304. Cease and desist orders.

If the commissioner finds that public health, safety, or welfare imperatively requires emergency action, and incorporates a finding to that effect in an order, a summary cease and desist order may be issued pending proceedings for other actions under this part. These proceedings shall be promptly instituted and determined.

Acts 1993, ch. 253, § 16.

56-2-305. Violations — Commissioner's orders — Penalties.

  1. If, after providing notice consistent with the process established by § 4-5-320(c) and providing the opportunity for a contested case hearing held in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, part 3, the commissioner finds that any insurer, person, or entity required to be licensed, permitted, or authorized by the division of insurance has violated any statute, rule or order, the commissioner may, at the commissioner's discretion, order:
    1. The insurer, person, or entity to cease and desist from engaging in the act or practice giving rise to the violation;
    2. Payment of a monetary penalty of not more than one thousand dollars ($1,000) for each violation, but not to exceed an aggregate penalty of one hundred thousand dollars ($100,000), unless the insurer, person, or entity knowingly violates a statute, rule or order, in which case the penalty shall not be more than twenty-five thousand dollars ($25,000) for each violation, not to exceed an aggregate penalty of two hundred fifty thousand dollars ($250,000). This subdivision (a)(2) shall not apply where a statute or rule specifically provides for other civil penalties for the violation. For purposes of this subdivision (a)(2), each day of continued violation shall constitute a separate violation; and
    3. The suspension or revocation of the insurer’s, person’s, or entity's license.
  2. In determining the amount of penalty to assess under this section, or in determining whether the violation was a knowing violation for the purpose of subdivision (a)(2), the commissioner shall consider any evidence relative to the following criteria:
    1. Whether the insurer, person or entity could reasonably have interpreted its actions to be in compliance with the obligations required by a statute, rule or order;
    2. Whether the amount imposed will be a substantial economic deterrent to the violator;
    3. Whether the amount imposed would put the violator in a hazardous financial condition;
    4. The circumstances leading to the violation;
    5. The severity of the violation and the risk of harm to the public;
    6. The economic benefits gained by the violator as a result of noncompliance;
    7. The interest of the public; and
    8. The insurer's, person's, or entity's efforts to cure the violation.
  3. Notwithstanding the limitations set forth in subdivision (a)(2), no aggregate penalty limits shall apply to the following:
    1. Failure to file audited statements required pursuant to § 56-1-501(h) and rules promulgated under § 56-1-501(h);
    2. Failure to file quarterly financial statements as required by statute or regulation;
    3. Failure to file actuarial opinions pursuant to § 56-1-501(d) and rules promulgated under § 56-1-501(d);
    4. Failure to file annual reports pursuant to §§ 56-19-119, 56-28-111, 56-29-113, 56-30-117, 56-31-116, 56-43-108, and 56-44-104;
    5. Failure to file a risk-based capital report pursuant to § 56-46-103; and
    6. Violations of orders issued after a contested case hearing held in accordance with the Uniform Administrative Procedures and pursuant to subdivision (a)(1).
  4. This section does not apply to individual or business entity insurance producers licensed pursuant to chapter 6, part 1 of this title.
    1. Notwithstanding any law to the contrary, civil penalties received under the authority of this section shall be utilized by the department, at the discretion of the commissioner, to:
      1. Defray its expenses related to the liquidation of insurance companies as provided by chapter 9 of this title;
      2. Promote consumer awareness of insurance; or
      3. Provide training or educational opportunities to employees of the division of insurance.
    2. Any subaccount currently used by the department for training and education may also be used for the promotion of consumer awareness.
    1. If, at any time following the certification of the vehicle insurance verification program under § 55-12-212, the commissioner of commerce and insurance finds that an automobile liability insurer, as defined in § 55-12-203, has intentionally violated § 56-7-1118, then the commissioner may, after providing the opportunity for a contested case hearing held in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, assess a civil penalty against the automobile liability insurer of up to two hundred fifty dollars ($250) for each day the insurer fails to comply with § 56-7-1118. The commissioner may excuse or reduce the civil penalty under this subdivision (f)(1) for good cause.
    2. Until the certification of the program occurs, the commissioner shall not assess any civil penalty or convene a contested case hearing for an alleged violation of § 56-7-1118 by an automobile liability insurer.

Acts 2007, ch. 338, § 1; 2015, ch. 511, § 8.

Compiler's Notes. Acts 2015, ch. 511, § 10 provided that the commissioner of revenue, the commissioner of safety, and the commissioner of commerce and insurance are authorized to promulgate rules to effectuate the purposes of the act. All rules shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in Tennessee Code Annotated, title 4, chapter 5.

NOTES TO DECISIONS

1. Willful Violation.

Agent overcharged the insured by approximately $ 4,000 for the policies, and he deposited approximately $ 14,000 into his bank account and never remitted any of the money to the insurer; the scope of the agent's violations went well beyond his claim that the mistakes were merely clerical errors, and there was sufficient evidence to support the determination that the agent's violations were willful. Cunningham v. Tenn. DOC, Ins. Div., — S.W.3d —, 2017 Tenn. App. LEXIS 606 (Tenn. Crim. App. May 11, 2017).

2. Sanctions.

Each of the agent's six statutory violations could result in revocation of his insurance producer's license and/or the levy of a civil penalty under T.C.A. §§ 56-2-305, 56-6-112(a); the commissioner imposed an $ 18,000 penalty and revocation of the agent's license, and the statute clearly allows the commissioner to impose such a penalty when there have been numerous willful violations of the statute, as in this case. Cunningham v. Tenn. DOC, Ins. Div., — S.W.3d —, 2017 Tenn. App. LEXIS 606 (Tenn. Crim. App. May 11, 2017).

Part 4
Foreign and Alien Insurance Companies

56-2-401. Alien government controlled companies excluded — Definition.

  1. Any insurance company or other insurance entity that is financially owned or financially controlled by any alien or foreign government outside the continental limits of the United States or the territories of the United States is prohibited from doing any kind of insurance business in this state.
  2. For the purposes of this section and §§ 56-2-402 — 56-2-404, “alien or foreign government” means any foreign government or any state, province, municipality, or political subdivision of any foreign government, but does not apply to any insurance company organized under the laws of a foreign nation that is financially owned or financially controlled by the private citizens or private business interests of the foreign nation.

Acts 1955, ch. 3, § 1; T.C.A., §§ 56-323, 56-228.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 78.

56-2-402. Issuance of license to company controlled by foreign government prohibited.

The commissioner is forbidden to grant a license to any insurance company or other insurance entity that is financially owned or financially controlled by any alien or foreign government outside the continental limits of the United States or the territories of the United States, or to authorize the company or entity to transact any kind of insurance business in this state.

Acts 1955, ch. 3, § 2; T.C.A., §§ 56-324, 56-229.

56-2-403. Penalty for violations.

Any insurance company or other insurance entity that is financially owned or financially controlled by any alien or foreign government outside the continental limits of the United States or the territories of the United States, or any representative or agent of the company or entity, that violates §§ 56-2-401, 56-2-402, this section and § 56-2-404, commits a Class C misdemeanor.

Acts 1955, ch. 3, § 3; T.C.A., §§ 56-325, 56-230; Acts 1989, ch. 591, § 113.

Cross-References. Penalty for Class C misdemeanor, § 40-35-111.

56-2-404. Foreign government controlled company as public nuisance — Injunction.

Any violation of §§ 56-2-40156-2-403 and this section by an insurance company or other insurance entity that is financially owned or financially controlled by any alien or foreign government outside the continental limits of the United States or the territories of the United States, or by any representative or agent of the company or entity, is declared to be a public nuisance, and the commissioner is authorized and empowered to enjoin the nuisance by injunctive proceedings in the chancery court in like manner as is provided by the general statutes pertaining to enjoining nuisances.

Acts 1955, ch. 3, § 4; T.C.A., §§ 56-326, 56-231.

Cross-References. Injunction of nuisances, §§ 29-3-10229-3-112.

56-2-405. Admission of companies of other countries — Deposits.

  1. Any foreign company, if incorporated or associated under the laws of any government or state other than the United States, shall not be admitted until, besides complying with the conditions of §§ 56-2-101 — 56-2-103, 56-2-113 — 56-2-115, 56-2-201 and 56-2-301, it has made a deposit with the state treasurer, or with the financial officer of some other state of the United States, a sum of not less than two hundred thousand dollars ($200,000).
  2. The deposit must be in exclusive trust for the benefit and security of all the company's policyholders and creditors in the United States, and may be made in bonds of this state or of the United States, or of some state in the United States, or other good securities satisfactory to the commissioner.
  3. The deposit shall be in lieu of any other deposit required of life insurance companies incorporated under the laws of any government or state other than the United States.

Acts 1895, ch. 160, § 10; 1909, ch. 181, § 1; Shan., § 3293; Code 1932, § 6109; T.C.A. (orig. ed.), §§ 56-310, 56-232; Acts 1989, ch. 36, § 3.

Cross-References. Companies on Lloyd's plan authorized to do business, § 56-2-206.

56-2-406. Trustees of companies of other countries.

  1. Any admitted company of a foreign country may appoint trustees who are citizens of the United States, and approved by the commissioner, to hold funds in trust for the benefit of its policyholders and creditors in the United States.
  2. These trustees shall be named by the directors of the company, and a certified copy of the record of the appointment of the trustees and of the deed of trust shall be filed in the office of the commissioner, who may examine the trustees and the assets in trust, and all books and papers relating to the trust, in the same manner that the commissioner may examine the officers, agents, assets, and affairs of insurance companies.
  3. The funds held by the trustees, so far as the funds are in securities, money, or credits, admissible as sound assets in the financial accounts of insurance companies, shall, together with its deposits made in accordance with § 56-2-405, constitute the assets of the company as regards its policyholders and creditors in the United States.

Acts 1895, ch. 160, § 11; Shan., § 3294; Code 1932, § 6110; T.C.A. (orig. ed.), §§ 56-311, 56-233.

56-2-407. Revocation of authority of foreign companies.

The authority of a foreign insurance company may be revoked:

  1. If it violates or neglects to comply with any law obligatory upon it;
  2. Whenever, in the opinion of the commissioner, its condition is unsound, or its assets above its liabilities exclusive of capital and inclusive of unearned premiums, as provided in §§ 56-1-402 — 56-1-405 [see the Compiler's Notes], are less than the amount of its original capital or required unimpaired funds; or
  3. If any foreign company licensed to transact business in this state reinsures or accepts reinsurance on property located in this state for any company not authorized to transact the business of insurance in this state; provided, that § 56-1-102 does not apply to foreign marine policies.

Acts 1895, ch. 160, § 12; Shan., § 3295; Acts 1919, ch. 170, § 1; Code 1932, § 6111; T.C.A. (orig. ed.), §§ 56-312, 56-234.

Compiler's Notes. Sections 56-1-402 and 56-1-403, referred to in this section, were repealed by Acts 2013, ch. 260, § 1, effective July 1, 2013.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 5.

56-2-408. Licenses of foreign insurance companies expire on July 1.

All licenses authorizing foreign insurance companies to transact their business in the state shall terminate or expire on July 1 next succeeding the date of their issuance, unless sooner revoked by the commissioner.

Acts 1903, ch. 442, § 1; 1917, ch. 65, § 1; Shan., § 3302a1; Code 1932, § 6119; Acts 1947, ch. 91, § 1; C. Supp. 1950, § 6119; T.C.A. (orig. ed.), §§ 56-313, 56-235.

56-2-409. Renewal of license of foreign fire or marine companies — Terms.

Renewal of a license to transact the business of fire, fire marine, or marine insurance in this state, for companies or associations not incorporated under the laws of this state, shall only be issued after the secretary or manager of the company or association desiring to renew the license to do business in this state has first made oath that no policy or contract of insurance covering property located in the state has been issued, written, or placed during the twelve (12) months preceding, except by resident local agents of the company or association in the state, duly commissioned, and until and after the company or association has complied with all other laws of this state in respect to the admission of companies of other states and foreign countries.

Acts 1899, ch. 430, § 2; Shan., § 3369a60; Code 1932, § 6342; T.C.A. (orig. ed.), §§ 56-314, 56-236.

56-2-410. Revocation of license of fire or marine companies — Reinstatement.

  1. If any fire, fire marine, or marine insurance company or association violates or fails to observe and comply with any or all of the provisions of § 56-2-409, this section and § 56-2-411 applicable to it, it immediately shall become the duty of the commissioner to investigate the company's or association's conduct, and if the commissioner is satisfied as to the guilt of the insurance company or association, it shall be the commissioner's duty to revoke the license of the company or association to transact business in this state, and the revocation shall continue for at least one (1) year from the date of revocation.
  2. No insurance company or association whose authority to transact business in this state has been so revoked shall be again authorized or permitted to transact business until it has filed in the office of the commissioner a certificate, signed by its president or other chief officer, to the effect that the terms and obligations of § 56-2-409, this section and § 56-2-411 are accepted by it as a part of the condition of its right and authority to transact business in this state.

Acts 1899, ch. 430, § 4; Shan., § 3369a62; Code 1932, § 6344; T.C.A. (orig. ed.), §§ 56-317, 56-239.

Cross-References. Revocation of authority of foreign companies, § 56-2-407.

56-2-411. Citizens procuring insurance with foreign companies — Liability for taxes.

  1. Under §§ 56-2-409, 56-2-410, and this section are also included citizens of this state procuring and holding insurance contracts or policies on the types of coverage listed in § 56-2-201 upon property situated or located in this state in companies not authorized to transact business in this state.
  2. The procuring or accepting policies or contracts of the insurance from unauthorized companies or associations makes every citizen of this state, including industrial insureds as defined in § 56-2-105(7), holding the contracts or policies liable for taxes, the same as if procured through a surplus lines agent. The taxes shall be paid at the same time, in the same manner, and at the same rate as the tax levied on surplus lines insurance in §§ 56-14-106 and 56-14-113.

Acts 1899, ch. 430, § 5; Shan., § 3369a63; Code 1932, § 6345; T.C.A. (orig. ed.), §§ 56-318, 56-240; Acts 2015, ch. 155, § 3; 2016, ch. 735, § 3.

Amendments. The 2016 amendment substituted “the same as if procured through a surplus lines agent” for “the same as if each company or association were transacting business in this state as a surplus lines insurer” at the end of the first sentence of (b).

Effective Dates. Acts 2016, ch. 735, § 10. April 7, 2016.

56-2-412. Retaliatory provisions — Dividing commissions between agents.

  1. Whenever the laws of any other state of the United States require of insurance companies incorporated by or organized under the laws of this state, or the agents of the companies, any deposit of securities in such state for the protection of policyholders, or otherwise, greater than the amount required for similar purposes from similar companies of other states by the then existing laws of this state, then, in every such case, all companies of the states establishing an agency or agencies in this state shall be required to make the same deposit for a like purpose with the state treasurer and to pay into the state treasury the taxes, fines, penalties, license fees, or otherwise, an amount equal to the amount of the charges and payments imposed by law of such state upon companies of this state, and their agents.
  2. Any commission received by a Tennessee resident agent may be shared with another resident agent or with a licensed nonresident insurance agent or broker; provided, that if the nonresident insurance agent or broker resides in, or is a licensed agent or broker in, a state that requires the retention of a stipulated percentage of the commission on risks placed in the state by nonresident agents or brokers, then and in that event the Tennessee resident agent shall require the same percentage of the commission as would be required if a Tennessee agent or broker placed similar insurance in the state of the residence of the nonresident insurance agent or broker; and provided further, that if the nonresident insurance agent or broker resides in a state, county or municipality that by statute or ordinance prohibits the division of commissions on insurance covering property or risks in the city, county or state of the nonresident agent or broker, then and in that event it shall be unlawful for the Tennessee resident agent or broker to pay the nonresident agent or broker any share or portion of the commission on insurance on property or risks in this state.

Acts 1895, ch. 160, § 20; Shan., § 3304; Code 1932, § 6124; T.C.A. (orig. ed.), § 56-309; Acts 1955, ch. 128, § 1; T.C.A. (orig. ed.), § 56-241.

Cross-References. Reciprocity of tax treatment, § 56-4-218.

NOTES TO DECISIONS

1. Constitutionality.

Retaliatory statutes did not violate U.S. Const., 14th amend. guaranteeing the equal protection of the laws. Philadelphia Fire Asso. v. New York, 119 U.S. 110, 7 S. Ct. 108, 30 L. Ed. 342, 1886 U.S. LEXIS 1969 (1886).

2. Expiration of License.

A corporation having received a license for a year was within the state for that year; but such retaliatory legislation could have been enforced against it after the expiration of the year for which it was licensed. Philadelphia Fire Asso. v. New York, 119 U.S. 110, 7 S. Ct. 108, 30 L. Ed. 342, 1886 U.S. LEXIS 1969 (1886) (decision under prior law).

Part 5
Service of Process

56-2-501. Service and acknowledgment of service of process against incorporated domestic insurance companies.

  1. Every insurance company incorporated under the laws of this state shall, by a duly executed instrument, constitute and appoint the commissioner, the commissioner's deputy and their successors in office its true and lawful attorneys, upon whom all lawful processes in any action or legal proceeding against it may be served and who may acknowledge any such lawful processes.
  2. Every insurance company incorporated under the laws of this state shall agree that any lawful process against it that may be served upon its attorneys or upon which they may acknowledge service, shall be of the same force and validity as if served on the company, and that the authority thereof shall continue in force irrevocably as long as any liability of the company remains outstanding.
  3. Any process issued by any court of record in this state and acknowledged by or served upon the commissioner or the commissioner's deputy by the proper officer of the county in which the office of commissioner or deputy is located shall be deemed a sufficient process on the company. It is the duty of the commissioner and deputy, immediately after service of process, to forward by registered return receipt mail to the company an exact copy of the process.
  4. A record of each service of process shall be kept in the office of the commissioner, showing the date of service, the name of the company on whose behalf service was acknowledged, the name of the plaintiff or complainant, the date the defendant is required to answer, the court issuing the process, and the county in which the suit is brought.
  5. The power of attorney shall be filed and kept in the office of the commissioner.

Acts 1909, ch. 265, § 1; Shan., § 3292a2; mod. Code 1932, § 6108; T.C.A. (orig. ed.), §§ 56-237, 56-242.

Cross-References. Certified mail instead of registered mail, § 1-3-111.

Foreign fraternal benefit society, process against, service on commissioner of commerce and insurance, § 56-25-701.

Textbooks. Tennessee Jurisprudence, 3 Tenn. Juris., Attachment and Garnishment, § 150; 21 Tenn. Juris., Process, § 8.

Law Reviews.

Workmen's Compensation — Venue — Suit Against Insurer, 34 Tenn. L. Rev. 539.

NOTES TO DECISIONS

1. Venue of Suit.

The insurer, served by process on the commissioner, may be sued in a county other than the one in which the commissioner has his office, although it had ceased to do business in the state. Southern Paving Const. Co. v. Knoxville, 245 F. 421, 1917 U.S. App. LEXIS 1503 (6th Cir. Tenn. 1917).

56-2-502. Service of process on foreign and alien companies — Definitions.

As used in this section and §§ 56-2-503 and 56-2-504:

  1. “Alien insurance company” means an insurance company organized under the laws of any country other than the United States or territory or insular possession of the United States or of the District of Columbia;
  2. “Doing business in this state” by any foreign or alien insurance company means the doing in this state by the company of any act whatsoever, whether interstate or intrastate in nature, including the soliciting, making, or delivering of insurance contracts in this state, by an agent, mail or otherwise;
  3. “Foreign insurance company” means an insurance company organized under the laws of any state of the United States, other than this state, or under the law of any territory or insular possession of the United States or the District of Columbia; and
  4. “Insurance company” means an insurance or surety company, including mutual companies, and includes a corporation, company, partnership, association, social, fraternal or otherwise, order, individual or aggregation of individuals engaging in or proposing or attempting to engage in any kind of insurance or surety business, including the exchange of reciprocal or interinsurance contracts between individuals, partnerships and corporations.

Acts 1947, ch. 119, §§ 1, 2; C. Supp. 1950, § 6211.1 (Williams, §§ 6459.48, 6459.49); T.C.A. (orig. ed.), §§ 56-319, 56-243.

Law Reviews.

Conflict of Laws — 1959 Tennessee Survey (John W. Wade), 12 Vand. L. Rev. 1090.

NOTES TO DECISIONS

1. Constitutionality.

Sections 56-2-50256-2-504 are not unconstitutional as an improper attempt to regulate the use of the United States mail. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Service of process under the provisions of §§ 56-2-50256-2-504 upon insurance company doing mail order business in Tennessee was not a violation of due process. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

2. Construction.

A broad and liberal interpretation of §§ 56-2-50256-2-504 consistent with the terms of the statute should be adopted in order that Tennessee residents holding policies issued by companies covered by the statute will not be forced to pursue their remedies in distant states. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

3. Application.

It was the intention of the general assembly to authorize substituted service under §§ 56-2-50256-2-504 on whatever foundation of activities within the state that might be deemed by the supreme court to be the minimum consistent with standards of due process. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Where accident insurance policy was delivered outside the state before enactment of §§ 56-2-50256-2-504 but insured died in Tennessee after residing in this state for a number of years and remitting insurance premiums by mail from this state to office of foreign insurance company, the mode of service provided by these sections was available in suit upon policy. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

4. Doing Business in Tennessee.

Mailing of premium notices and remittance of premium payments and submission of proofs of death were activities which involved foreign accident insurance company at one end or the other of such transactions and constituted doing of business in Tennessee. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Where only facts in record were to the effect that defendant insurance company issued insurance contract to Alabama citizen in Alabama covering motor vehicle registered in Alabama which motor vehicle was involved in accident in Tennessee, record did not establish that insurance company was doing business in Tennessee so that personal jurisdiction could not be obtained over insurance company by service on commissioner of insurance (now commissioner of commerce and insurance). Willis v. State Farm Mut. Auto. Ins. Co., 221 Tenn. 1, 423 S.W.2d 855, 1968 Tenn. LEXIS 443 (1968).

5. Validity of Judgments.

Judgment against foreign insurance company doing business in Tennessee based on service under the provisions of §§ 56-2-50256-2-504 and entered pro confesso was entitled to full faith and credit in foreign court. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Collateral References.

Subjecting foreign insurance company to service of process in action on policy as due process of law. 44 A.L.R.2d 416.

56-2-503. Commissioner as attorney for purpose of process.

  1. Any foreign or alien insurance company, before doing business in this state, as defined in § 56-2-502, shall appoint the commissioner its true and lawful attorney as required by § 56-2-103(a)(3).
  2. If the company does business in this state, as defined in § 56-2-502, without having appointed the commissioner its true and lawful attorney, as required in this part, it shall, by doing business in this state, be deemed to have thereby appointed the commissioner its true and lawful attorney for the purposes set forth in this part.
  3. The requirements of this section shall be in addition to, and not in derogation of, any other law.

Acts 1947, ch. 119, §§ 3-5; C. Supp. 1950, § 6211.2 (Williams, §§ 6459.50-6459.52); modified; T.C.A. (orig. ed.), § 56-320; impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-244.

Cross-References. Service of process upon commissioner, § 56-2-103.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 5.

NOTES TO DECISIONS

1. Constitutionality.

Sections 56-2-50256-2-504 are not unconstitutional as an improper attempt to regulate the use of the United States mail. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Service of process under the provisions of §§ 56-2-50256-2-504 upon insurance company doing mail order business in Tennessee was not a violation of due process. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

2. Construction.

A broad and liberal interpretation of §§ 56-2-50256-2-504 consistent with the terms of the statute should be adopted in order that Tennessee residents holding policies issued by companies covered by the statute will not be forced to pursue their remedies in distant states. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

3. Application.

It was the intention of the general assembly to authorize substituted service under §§ 56-2-50256-2-504 on whatever foundation of activities within the state that might be deemed by the supreme court to be the minimum consistent with standards of due process. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Where accident insurance policy was delivered outside the state before enactment of §§ 56-2-50256-2-504 but insured died in Tennessee after residing in this state for a number of years and remitting insurance premiums by mail from this state to office of foreign insurance company, the mode of service provided by these sections was available in suit upon policy. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

4. Appointment of Commissioner.

5. —Judicial Notice.

Supreme court could not take judicial notice that insurance company had allegedly qualified to do business in Tennessee and appointed commissioner its agent for service of process. Willis v. State Farm Mut. Auto. Ins. Co., 221 Tenn. 1, 423 S.W.2d 855, 1968 Tenn. LEXIS 443 (1968).

6. Validity of Judgments.

Judgment against foreign insurance company doing business in Tennessee based on service under the provisions of §§ 56-2-50256-2-504 and entered pro confesso was entitled to full faith and credit in foreign court. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

7. Writ of Scire Facias.

The commissioner is appointed the attorney for service of process for all insurance companies doing business in Tennessee, and service of process and notice on the commissioner is permitted by § 56-2-504. However, although this latter statute sets out a general method of such service, the specificity of § 29-32-106 controls the method of service of the writ of scire facias. Indemnity Ins. Co. v. Blackwell, 653 S.W.2d 262, 1983 Tenn. App. LEXIS 546 (Tenn. Ct. App. 1983).

56-2-504. Any lawful process may be served on commissioner or secretary of state — Requirements.

  1. When the commissioner has been appointed or constituted attorney for a foreign or alien insurance company, either by power of attorney or by failure to comply with § 56-2-503, any lawful process against or notice to the company in any action or proceeding against it from any cause of action arising in the state may be served on the commissioner, and filing the power of attorney or doing business in the state shall be a signification of its agreement that the process or notice served shall be of the same legal force and validity as if served upon it in the state. In case of any action or proceeding instituted by or on behalf of the commissioner against or with reference to the company, process may be lawfully served on the secretary of state.
  2. Service of process shall be made by leaving two (2) copies of the process or notice, together with a fee of fifteen dollars ($15.00), in the office of the commissioner, together with an affidavit giving the last known address of the defendant, and the service shall be sufficient if notice of the service, and a copy of the process or notice are forthwith sent by registered mail, with return receipt requested, or certified mail by the commissioner to the company at the last known address. An affidavit of the commissioner showing compliance with this subsection (b) shall be filed with the paper in the action or proceeding.
  3. The court in which the action or proceeding is pending may order continuances necessary to afford the defendant reasonable opportunity to defend the action. No judgment shall be entered against the defendant under this section until at least thirty (30) days have elapsed after process or notice has been served on the commissioner.
  4. The references in this section to the commissioner shall, in the case of any action or proceeding instituted by or on behalf of the commissioner, be deemed to refer to the secretary of state, and the duties and responsibilities imposed by this section shall, in such cases, be performed and discharged by the secretary of state.

Acts 1947, ch. 119, §§ 6, 7; C. Supp. 1950, § 6211.3 (Williams, §§ 6459.53, 6459.54); Acts 1953, ch. 136, § 1; T.C.A. (orig. ed.), § 56-321; impl. am. Acts 1971, ch. 137, § 2; Acts 1976, ch. 476, § 1; T.C.A., § 56-245; Acts 1980, ch. 821, §§ 1, 2; 2001, ch. 333, § 1.

Compiler's Notes. Acts 2001, ch. 333, § 9 provided that the purpose of the act is to afford the insurance division of the department of commerce and insurance the ability to obtain sufficient staff and resources to adequately implement the provisions of title 56 and title 55, chapter 18, part 1 as related to the regulation of the business of insurance. Notwithstanding any law to the contrary, the increase in revenues generated by passage of the act shall be utilized by the department of commerce and insurance to defray the expenses of improvements to the department's insurance division incurred in the regulation of the business of insurance, including the expenses associated with any improvements to the division deemed necessary from time to time by the commissioner of the department of commerce and insurance. The improvements contemplated by the act shall be in addition to the base level funding appropriated to the insurance division in the fiscal year ending June 30, 2001. The commissioner of commerce and insurance is directed to identify the increase in revenues generated by the act and the expenditures associated with this increase, and annually inform the commissioner of the department of finance and administration of the amount of any unexpended revenues. The commissioner of finance and administration at the close of each fiscal year shall reserve any excess revenues raised by the act and unspent by the department of commerce and insurance, until expended for purposes consistent with the act. The funds shall not revert to the general fund on any June 30, and excess revenues shall not revert on any June 30, but shall remain available only for the benefit of the department of commerce and insurance's insurance division.

Cross-References. Certified mail instead of registered mail, § 1-3-111.

Foreign fraternal benefit society, service of process against, § 56-25-701.

Law Reviews.

Tennessee Workers' Compensation — Where Is the Proper Venue? (D. Andrew Byrne, Ted C. Raynor), 20 Mem. St. U. L. Rev. 189 (1990).

NOTES TO DECISIONS

1. Constitutionality.

Sections 56-2-50256-2-504 are not unconstitutional as an improper attempt to regulate the use of the United States mail. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Service of process under the provisions of §§ 56-2-50256-2-504 upon insurance company doing mail order business in Tennessee was not a violation of due process. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

2. Construction.

A broad and liberal interpretation of §§ 56-2-50256-2-504 consistent with the terms of the statute should be adopted in order that Tennessee residents holding policies issued by companies covered by the statute will not be forced to pursue their remedies in distant states. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

This section and § 56-2-502(3) are to be construed together. Cox v. Fidelity-Phenix Fire Ins. Co., 203 Tenn. 386, 313 S.W.2d 429, 1958 Tenn. LEXIS 315 (1958).

T.C.A. § 56-2-504 is not intended to be an exclusive means of service of process on a foreign insurance corporation. Walker v. Nationwide Ins. Co., 813 S.W.2d 135, 1990 Tenn. App. LEXIS 766 (Tenn. Ct. App. 1990).

3. Application.

It was the intention of the general assembly to authorize substituted service under §§ 56-2-50256-2-504 on whatever foundation of activities within the state that might be deemed by the supreme court to be the minimum consistent with standards of due process. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

Where accident insurance policy was delivered outside the state before enactment of §§ 56-2-50256-2-504 but insured died in Tennessee after residing in this state for a number of years and remitting insurance premiums by mail from this state to office of foreign insurance company, the mode of service provided by these sections was available in suit upon policy. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

4. Jurisdiction.

In action on insurance contract issued in Kentucky by a Kentucky agent covering real and personal property located in Kentucky, substituted service on Tennessee insurance commissioner was not sufficient to give the Tennessee court jurisdiction of the cause of action. Cox v. Fidelity-Phenix Fire Ins. Co., 203 Tenn. 386, 313 S.W.2d 429, 1958 Tenn. LEXIS 315 (1958).

This statute is applicable only to foreign companies who by one of the two methods set out in § 56-2-503 have appointed the commissioner their agent for service of process and unless it can be shown that the commissioner has been so designated there is no authority for service under this section. Willis v. State Farm Mut. Auto. Ins. Co., 221 Tenn. 1, 423 S.W.2d 855, 1968 Tenn. LEXIS 443 (1968).

Where only facts in the record were to the effect that defendant insurance company issued insurance contract to Alabama citizen in Alabama covering motor vehicle registered in Alabama which motor vehicle was involved in accident in Tennessee, record did not establish that insurance company was “doing business in Tennessee” as provided in § 56-2-502 so that jurisdiction could not be obtained over insurance company by service on commissioner. Willis v. State Farm Mut. Auto. Ins. Co., 221 Tenn. 1, 423 S.W.2d 855, 1968 Tenn. LEXIS 443 (1968).

5. Venue.

Where workers' compensation claimant was temporarily in Davidson County and was injured at employer's plant in Davidson County and thereafter returned to Fentress County which was the county of his residence and commenced action in Fentress County against his employer's insurance carrier, a foreign corporation licensed to do business in Tennessee and having an office in Davidson County but not in Fentress County, by service of process on commissioner under this section, trial court properly sustained plea in abatement on ground that venue was not in Fentress County. Human v. Liberty Mut. Ins. Co., 219 Tenn. 335, 409 S.W.2d 536, 1966 Tenn. LEXIS 533 (1966), superseded by statute as stated in, Sikes v. Colonial Rubber Co., 575 S.W.2d 275, 1978 Tenn. LEXIS 691 (Tenn. 1978).

6. Validity of Judgments.

Judgment against foreign insurance company doing business in Tennessee based on service under the provisions of §§ 56-2-50256-2-504 and entered pro confesso was entitled to full faith and credit in foreign court. Schutt v. Commerical Travelers Mut. Acci. Asso., 229 F.2d 158, 1956 U.S. App. LEXIS 3553 (2d Cir. N.Y. 1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956), cert. denied, Commercial Travelers Mut. Acci. Asso. v. Schutt, 351 U.S. 940, 76 S. Ct. 836, 100 L. Ed. 1466, 1956 U.S. LEXIS 940 (1956).

7. Writ of Scire Facias.

The commissioner is appointed the attorney for service of process for all insurance companies doing business in Tennessee, and service of process and notice on the commissioner is permitted by this section. However, although this section sets out a general method of such service, the specificity of § 29-32-106 controls the method of service of the writ of scire facias. Indemnity Ins. Co. v. Blackwell, 653 S.W.2d 262, 1983 Tenn. App. LEXIS 546 (Tenn. Ct. App. 1983).

56-2-505. Unauthorized insurers doing business constitutes secretary of state as attorney for service of process.

  1. Any act of entering into a contract of insurance as an insurer or transacting insurance business in this state, as set forth in § 56-2-107, by an unauthorized foreign or alien company, is equivalent to and constitutes an appointment by the company of the secretary of state to be its true and lawful attorney upon whom may be served all lawful process in any action or proceeding against it:
    1. Arising out of a violation of § 56-2-105; or
    2. To collect the taxes imposed in chapter 4 of this title.
  2. The performance of any of the acts enumerated in § 56-2-107 is signification of the company's agreement that any such process against it that is so served is of the same legal force and validity as if served upon the company.

Acts 1968, ch. 536, § 7; T.C.A., § 56-255.

Compiler's Notes. This section may be affected by Tenn. R. Civ. P. 4.04, as to forwarding a copy of the complaint.

Cross-References. Acts constituting commissioner of commerce and insurance as attorney for service of process, § 56-2-602.

56-2-506. Method of service — Notice to defendant — Filing with clerk.

  1. Service of process shall be made by delivering and leaving with the secretary of state two (2) copies of the process.
  2. The secretary of state shall forthwith mail by registered mail one (1) of the copies of the process to the company at its last known principal place of business, and shall keep a record of all process so served upon the secretary of state.
  3. The service shall be sufficient service upon the company; provided, that notice of the service and a copy of the process are, within ten (10) days thereafter, sent by registered mail by or on behalf of the commissioner to the company at its last known principal place of business; and provided, further, that the receipt by the secretary of state and an affidavit of compliance with this section by or on behalf of the commissioner are filed with the clerk of the court in which the action or proceeding is pending on or before the return date of the process or within any further time that the court allows.

Acts 1968, ch. 536, § 8; T.C.A., § 56-256.

Cross-References. Certified mail instead of registered mail, § 1-3-111.

56-2-507. Continuance may be granted — Motion to quash or set aside service.

  1. The court in any action or proceeding in which service is made in the manner provided in § 56-2-506 may, in its discretion, order a postponement necessary to afford the company reasonable opportunity to defend the action or proceeding.
  2. Nothing in this section is to be construed to prevent an unauthorized foreign or alien company from filing a motion to quash a writ or to set aside service of the motion made in the manner provided in § 56-2-506 on the ground that the unauthorized company has not done any of the acts referred to in § 56-2-107.

Acts 1968, ch. 536, § 9; T.C.A., § 56-257.

56-2-508. Time allowed before judgment.

No judgment by default shall be entered in the action or proceeding until the expiration of thirty (30) days from the date of the filing of the affidavit of compliance.

Acts 1968, ch. 536, § 10; T.C.A., § 56-258.

56-2-509. Provisions supplemental.

Nothing in §§ 56-2-50556-2-508 or this section shall limit or affect the right to serve any process, notice or demand required or permitted by law to be served upon any company in any other manner now or hereafter permitted by law.

Acts 1968, ch. 536, § 11; T.C.A., § 56-259.

Part 6
Unauthorized Insurers Process Act

56-2-601. Short title.

This part shall be known and may be cited as the “Unauthorized Insurers Process Act.”

Acts 1955, ch. 2, § 6; T.C.A., §§ 56-327, 56-246.

Law Reviews.

Expanded In Personam Jurisdiction — Due Process and the Tennessee Long Arm Statute (Ben H. Cantrell), 33 Tenn. L. Rev. 371.

56-2-602. Acts constituting commissioner as attorney for service of process.

  1. Any of the following acts in this state, effected by mail or otherwise, by an unauthorized foreign or alien insurer, is equivalent to and shall constitute an appointment by the insurer of the commissioner and the commissioner's successor or successors in office, to be its true and lawful attorney, upon whom may be served all lawful process in any action, suit, or proceeding instituted by or on behalf of an insured or beneficiary arising out of the contract of insurance:
    1. The issuance or delivery of contracts of insurance to residents of this state or to corporations authorized to do business in this state;
    2. The solicitation of applications for the contracts;
    3. The collection of premiums, membership fees, assessments or other considerations for the contracts; or
    4. Any other transaction of insurance business.
  2. Any of the acts mentioned in subdivsions (a)(1)-(4) shall be signification of the insurer's agreement that the service of process is of the same legal force and validity as personal service of process in this state upon the insurer.

Acts 1955, ch. 2, § 2; T.C.A., § 56-328; modified; T.C.A., § 56-247.

Cross-References. Acts constituting secretary of state as attorney for service of process, § 56-2-505.

56-2-603. Method of service — Notice to defendant.

  1. The service of process shall be made by delivering to and leaving with the commissioner or some person in apparent charge of the commissioner's office two (2) copies of the service of process and the payment to the commissioner or other person of the fees prescribed by law.
  2. The commissioner shall forthwith mail by registered mail one (1) of the copies of the process to the defendant at its last known principal place of business, and shall keep a record of all process so served upon the commissioner.
  3. The service of process is sufficient; provided, that notice of the service and a copy of the process are sent within ten (10) days thereafter by registered mail by plaintiff or plaintiff's attorney to the defendant at its last known principal place of business, and the defendant's receipt, or receipt issued by the post office with which the letter is registered, showing the name of the sender of the letter and the name and address of the person to whom the letter is addressed, and the affidavit of the plaintiff or plaintiff's attorney showing a compliance with this section are filed with the clerk of the court in which the action is pending on or before the date the defendant is required to appear, or within a further time that the court allows.

Acts 1955, ch. 2, § 2; T.C.A., §§ 56-329, 56-248.

Cross-References. Certified mail instead of registered mail, § 1-3-111.

56-2-604. Personal service on agent or representative — Copy of process to defendant — Filing with clerk.

Service of process in the action, suit or proceeding shall, in addition to the manner provided in § 56-2-603, be valid if:

  1. Served upon any person within the state who, in this state on behalf of the insurer is soliciting insurance, is making, issuing or delivering any contract of insurance, or collecting or receiving any premium, membership fee, assessment or other consideration for insurance;
  2. A copy of the process is sent within ten (10) days thereafter by registered mail by the plaintiff or plaintiff's attorney to the defendant at the last known principal place of business of the defendant; and
  3. The defendant's receipt, or the receipt issued by the post office with which the letter is registered, showing the name of the sender of the letter and the name and address of the person to whom the letter is addressed, and the affidavit of the plaintiff or plaintiff's attorney showing a compliance with this section are filed with the clerk of the court in which the action is pending on or before the date the defendant is required to appear, or within a further time that the court allows.

Acts 1955, ch. 2, § 2; T.C.A., §§ 56-330, 56-249.

Cross-References. Certified mail instead of registered mail, § 1-3-111.

56-2-605. Time allowed before judgment.

No plaintiff or complainant shall be entitled to a judgment by default, or a judgment with leave to prove damages, or a judgment pro confesso under §§ 56-2-60256-2-604, this section and § 56-2-606 until the expiration of thirty (30) days from the date of the filing of the affidavit of compliance.

Acts 1955, ch. 2, § 2; T.C.A., §§ 56-331, 56-250.

56-2-606. Provisions supplemental.

Nothing contained in §§ 56-2-60256-2-605 and this section shall limit or abridge the right to serve any process, notice or demand upon any insurer in any other manner now or hereafter permitted by law.

Acts 1955, ch. 2, § 2; T.C.A., §§ 56-332, 56-251.

Law Reviews.

Expanded Bases of Jurisdiction — An Examination of Tennessee's New “Long-Arm” Statute (Harry G. Nichol, Jr.), 18 Vand. L. Rev. 1484 (1964-1965).

56-2-607. Defense by insurer — Bond or certificate of authority.

Before any unauthorized foreign or alien insurer files or causes to be filed any pleading in any action, suit or proceeding instituted against it, the unauthorized insurer shall:

  1. Deposit with the clerk of the court in which the action, suit or proceeding is pending cash or securities or file with the clerk a bond with good and sufficient sureties, to be approved by the court, in an amount to be fixed by the court sufficient to secure the payment of any final judgment that may be rendered in the action; or
  2. Procure a certificate of authority to transact the business of insurance in this state.

Acts 1955, ch. 2, § 3; T.C.A., §§ 56-333, 56-252.

Collateral References.

Automobile insurance: concealment or nondisclosure of physical defects or conditions as avoiding coverage. 72 A.L.R.3d 804.

56-2-608. Discretionary continuances.

The court, in any action, suit or proceeding in which service is made in the manner provided in § 56-2-603 or § 56-2-604, may, in its discretion, order a postponement that may be necessary to afford the defendant reasonable opportunity to comply with § 56-2-607, and to defend the action.

Acts 1955, ch. 2, § 3; T.C.A., §§ 56-334, 56-253.

56-2-609. Motions to quash or set aside service.

Nothing in § 56-2-607 is to be construed to prevent an unauthorized foreign or alien insurer from filing a motion to quash a writ or to set aside service of the motion made in the manner provided in § 56-2-603 or § 56-2-604 on the ground either that:

  1. The unauthorized insurer has not done any of the acts enumerated in § 56-2-602; or
  2. The person on whom service was made pursuant to § 56-2-604 was not doing any of the acts enumerated in § 56-2-604.

Acts 1955, ch. 2, § 3; T.C.A., §§ 56-335, 56-254.

Part 7
Enforcement of Decisions and Orders

56-2-701. Enforcement of orders or decisions against unauthorized insurers.

Upon the request of the commissioner, the attorney general and reporter may proceed in the courts of this state, or any reciprocal state, to enforce any order or decision in any court proceeding, or in any administrative proceeding before the commissioner, against any insurer arising out of a violation of §§ 56-2-10556-2-111.

Acts 1969, ch. 315, § 1; impl. am. Acts 1971, ch. 137, § 2; T.C.A., § 56-260.

56-2-702. Part definitions.

As used in this part:

  1. “Foreign decree” means any decree or order in equity of a court located in a reciprocal state, including a court of the United States located in the reciprocal state, against any insurer incorporated or authorized to do business in this state;
  2. “Qualified party” means a state regulatory agency acting in its capacity to enforce the insurance laws of its state; and
  3. “Reciprocal state” means any state or territory of the United States, the laws of which contain procedures substantially similar to those specified in this part for the enforcement of decrees or orders in equity issued by courts located in other states or territories of the United States, against any insurer incorporated or authorized to do business in the state or territory.

Acts 1969, ch. 315, § 1; T.C.A., § 56-261.

56-2-703. List of reciprocal states.

The commissioner shall determine which states and territories qualify as reciprocal states and shall maintain at all times an up-to-date list of those states.

Acts 1969, ch. 315, § 1; T.C.A., § 56-262.

56-2-704. Enforcement of foreign decrees.

  1. Filing and Status.
    1. A copy of any foreign decree authenticated in accordance with the statutes of this state may be filed in the office of the clerk of the chancery court of Davidson County.
    2. The clerk, upon verifying with the commissioner that the decree or order qualifies as a foreign decree, shall treat the foreign decree in the same manner as a decree of that court. A foreign decree so filed has the same effect and shall be deemed as a decree of that court, and is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a decree of that court and may be enforced or satisfied in like manner.
  2. Notice of Filing.
    1. At the time of the filing of the foreign decree, the attorney general and reporter shall make and file with the clerk of the chancery court of Davidson County an affidavit setting forth the name and last known post office address of the defendant.
    2. Promptly upon the filing of the foreign decree and the affidavit, the clerk shall mail notice of the filing of the foreign decree to the defendant at the address given and to the commissioner and shall make a note of the mailing in the docket. In addition, the attorney general and reporter may mail a notice of the filing of the foreign decree to the defendant and to the commissioner and may file proof of mailing with the clerk. Lack of mailing notice of filing by the clerk shall not affect the enforcement proceedings if proof of mailing by the attorney general and reporter has been filed.
    3. No execution or other process for enforcement of a foreign decree filed under this part shall issue until thirty (30) days after the decree is filed.
  3. Stay.
    1. If the defendant shows the chancery court of Davidson County that an appeal from the foreign decree is pending or will be taken, or that a stay of execution has been granted, that court shall stay enforcement of the foreign decree until the appeal is concluded, the time for appeal expires, or the stay of execution expires or is vacated, upon proof that the defendant has furnished the security for the satisfaction of the decree required by the state in which it was rendered.
    2. If the defendant shows the court any ground upon which enforcement of a decree of the court would be stayed, the court shall stay enforcement of the foreign decree for an appropriate period, upon requiring the same security for satisfaction of the decree that is required in this state.
  4. Fees.

    Fees for docketing, transcription or other enforcement proceedings shall be as provided for decrees of the chancery court of Davidson County.

Acts 1969, ch. 315, § 1; T.C.A., § 56-263.

Part 8
Confidential Information

56-2-801. Sharing of confidential information.

The commissioner shall maintain as confidential all information received from the National Association of Insurance Commissioners (NAIC), any state or federal agency, and foreign countries that is confidential in those jurisdictions. The commissioner may allow for the sharing of otherwise confidential documents, materials, information, administrative or judicial orders, and other actions with the regulatory officials of any state or federal agency and foreign countries; provided, that the recipients are required, under their respective laws, to maintain such confidentiality. The commissioner may also allow for the sharing of otherwise confidential documents, materials, information, administrative or judicial orders, and other actions with the NAIC; provided, that the NAIC demonstrates by written statement its intent to maintain such confidentiality.

Acts 2012, ch. 633, § 1.

Cross-References. Confidentiality of public records, § 10-7-504.

Part 9
Corporate Governance Annual Disclosure Act

56-2-901. Short title.

This part shall be known and may be cited as the “Corporate Governance Annual Disclosure Act.”

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-902. Purpose and scope.

  1. The purpose of this part is to:
    1. Provide the commissioner a summary of an insurer or insurance group's corporate governance structure, policies, and practices to permit the commissioner to gain and maintain an understanding of the insurer's corporate governance framework;
    2. Outline the requirements for completing a corporate governance annual disclosure with the commissioner; and
    3. Provide for the confidential treatment of the corporate governance annual disclosure and related information.
  2. Nothing in this part prescribes or imposes corporate governance standards and internal procedures beyond that which is required under applicable law. Notwithstanding this section, nothing in this part limits the commissioner's authority or the rights or obligations of third parties under §§ 56-1-408 — 56-1-413.
  3. This part applies to all insurers domiciled in this state, except for:
    1. Captive insurance companies licensed under the Revised Tennessee Captive Insurance Act, compiled in chapter 13 of this title; and
    2. Risk retention groups licensed under chapter 45 of this title.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-903. Part definitions.

As used in this part:

  1. “Commissioner” means the commissioner of commerce and insurance;
  2. “Corporate governance annual disclosure” or “CGAD” means a confidential report filed by the insurer or insurance group in accordance with this part;
  3. “Department” means the department of commerce and insurance;
  4. “Insurance group” means those insurers and affiliates included within an insurance holding company system as defined in § 56-11-101;
  5. “Insurer” has the same meaning as “insurance company” in § 56-1-102, except that “insurer” does not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state;
  6. “NAIC” means the National Association of Insurance Commissioners; and
  7. “ORSA summary report” means the report filed in accordance with chapter 11, part 2 of this title.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-904. Disclosure requirement.

  1. An insurer, or the insurance group of which the insurer is a member, shall, no later than June 1 of each calendar year, submit to the commissioner a CGAD that contains the information described in § 56-2-906(b). However, an insurer or insurance group that files a CGAD pursuant to § 56-2-906(c) may elect to file the CGAD either no later than June 1 or December 31 of each calendar year. Notwithstanding any request from the commissioner made pursuant to subsection (c), if the insurer is a member of an insurance group, the insurer must submit the report required by this section to the applicable insurance commissioner of the lead state for the insurance group, in accordance with the laws of the lead state, as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the NAIC.
  2. The CGAD must include a signature of the insurer or the insurance group's chief executive officer or corporate secretary attesting that, to the best of that individual's belief and knowledge, the insurer has implemented the corporate governance practices described in the CGAD and that a copy of the disclosure has been provided to the insurer's board of directors or the appropriate committee of the board.
  3. An insurer not required to submit a CGAD under this part shall do so upon the commissioner's request.
    1. For the purposes of completing the CGAD, the insurer or insurance group may provide information regarding corporate governance at the ultimate controlling parent level, an intermediate holding company level, the individual legal entity level, or at a combination of levels depending upon how the insurer or insurance group has structured its system of corporate governance. The insurer or insurance group shall consider the following criteria in determining the level at which the CGAD should be filed:
      1. The level at which the insurer's or insurance group's risk appetite is determined;
      2. The level at which the earnings, capital, liquidity, operations, and reputation of the insurer are overseen collectively and at which the supervision of those factors are coordinated and exercised; or
      3. The level at which legal liability for failure of general corporate governance duties would be placed.
    2. If, subsequent to the initial filing of the CGAD, the insurer changes the level of reporting, the insurer shall explain the reason for the change in the first CGAD filed after the change in level of reporting.
  4. The review of the CGAD and any additional requests for information must be made through the lead state as determined by the procedures within the most recent Financial Analysis Handbook adopted by the NAIC.
  5. Insurers providing information substantially similar to the information required by this part in other documents provided to the commissioner, including proxy statements filed in conjunction with Form B requirements, or other state or federal filings provided to the commissioner, or as part of any department request or examination, are not required to duplicate that information in the CGAD, but are only required to cross reference the document in which the information is included.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-905. Rules.

The commissioner may promulgate rules as are necessary to carry out this part in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-906. Contents of corporate governance annual disclosure.

  1. The insurer or insurance group has discretion over the responses to the CGAD inquiries, provided that the CGAD must contain the material information necessary to permit the commissioner to gain an understanding of the insurer's or group's corporate governance structure, policies, and practices. The commissioner may request additional information that the commissioner deems material and necessary to provide the commissioner with a clear understanding of the corporate governance policies, the reporting or information system, or the controls implementing those policies.
  2. Notwithstanding subsection (a), the CGAD must be prepared consistent with rules promulgated pursuant to this part. The rules must be consistent with subsection (c). Documentation and supporting information must be maintained and made available upon examination or upon the request of the commissioner.
  3. Rules promulgated under this part must prescribe separate but suitable corporate governance reporting requirements for any insurer or insurance group that is not admitted to write insurance on a direct basis in any other jurisdiction and is either:
    1. Organized under the Tennessee Nonprofit Corporation Act, compiled in title 48, chapters 51-68; or
    2. Governed by a board of which at least seventy-five percent (75%) of its voting directors receive no more than nominal compensation.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-907. Confidentiality.

  1. Documents, materials, or other information, including the CGAD, in the possession or control of the department that are obtained by, created by, or disclosed to the commissioner or any other person under this part, are recognized as being proprietary and containing trade secrets. All such documents, materials, or other information are confidential by law and privileged, are not subject to public inspection under § 10-7-503 or § 56-1-602, are not subject to subpoena, and are not subject to discovery or admissible in evidence in any private civil action. However, the commissioner is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as part of the commissioner's official duties. The commissioner shall not otherwise make the documents, materials, or other information public without the prior written consent of the insurer. Nothing in this section requires the written consent of the insurer before the commissioner may share or receive confidential documents, materials, or other CGAD-related information pursuant to subsection (c) to assist in the performance of the commissioner's official duties.
  2. Neither the commissioner nor any person that receives documents, materials, or other CGAD-related information, through examination or otherwise, while acting under the authority of the commissioner, or with whom the documents, materials, or other information are shared pursuant to this part, are permitted or required to testify in any private civil action concerning any confidential documents, materials, or information subject to subsection (a).
  3. In order to assist the commissioner in the performance of the commissioner's regulatory duties, the commissioner:
    1. May, as necessary and upon request, share documents, materials, or other CGAD-related information, including the confidential and privileged documents, materials, or information subject to subsection (a), and including proprietary and trade secret documents and materials, with other state, federal, or international financial regulatory agencies, including members of any supervisory college as set forth in § 56-11-116, and with the NAIC, and with third-party consultants pursuant to § 56-9-108; provided, that the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials, or other information and has verified in writing its legal authority to maintain such confidentiality; and
    2. May receive documents, materials, or other CGAD-related information, including otherwise confidential and privileged documents, materials, or information, and including proprietary and trade-secret information or documents, from regulatory officials of other state, federal, or international financial regulatory agencies, including members of any supervisory college as set forth in § 56-11-116, and from the NAIC, and shall maintain as confidential or privileged any such documents, materials, or information received with notice or the understanding that they are confidential or privileged under the laws of the jurisdiction that is the source of the documents, materials, or information.
  4. The sharing of information and documents by the commissioner pursuant to this part does not constitute a delegation of regulatory authority or rulemaking, and the commissioner is solely responsible for the administration, execution, and enforcement of this part.
  5. No waiver of any applicable privilege or claim of confidentiality in documents, proprietary and trade-secret materials, or other CGAD-related information shall occur as a result of disclosure of CGAD-related information or documents to the commissioner under this part or as a result of sharing as authorized under this part.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

Cross-References. Confidentiality of public records, § 10-7-504.

56-2-908. NAIC and third-party consultants.

  1. The commissioner may retain, at the insurer's expense, third-party consultants, including attorneys, actuaries, accountants, and other experts not otherwise part of the commissioner's staff, as may be reasonably necessary to assist the commissioner in reviewing the CGAD and related information or the insurer's compliance with this part.
  2. Any persons retained under subsection (a) are under the direction and control of the commissioner and shall act in a purely advisory capacity.
  3. The NAIC and any third-party consultants are subject to the same confidentiality standards and requirements as the commissioner.
  4. As part of the retention process, a third-party consultant shall verify to the commissioner, with notice to the insurer, that it is free of conflicts of interest and that it has internal procedures in place to monitor compliance with conflicts and to comply with the confidentiality standards and requirements of this part.
  5. A written agreement with the NAIC or a third-party consultant governing sharing and use of information provided pursuant to this part must contain the following provisions and expressly require the written consent of the insurer prior to making public information provided under this part:
    1. Specific procedures and protocols for maintaining the confidentiality and security of CGAD-related information shared with the NAIC or a third-party consultant pursuant to this part;
    2. Procedures and protocols for sharing by the NAIC only with other state regulators from states in which the insurance group has domiciled insurers. The agreement must provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials, or other information and has verified in writing its legal authority to maintain confidentiality;
    3. A provision specifying that ownership of the CGAD-related information shared with the NAIC or a third-party consultant remains with the department and that the NAIC's or third-party consultant's use of the information is subject to the direction of the commissioner;
    4. A provision that prohibits the NAIC or a third-party consultant from storing the information shared pursuant to this part in a permanent database after the underlying analysis is completed;
    5. A provision requiring the NAIC or third-party consultant to provide prompt notice to the commissioner and to the insurer or insurance group regarding any subpoena, request for disclosure, or request for production of the insurer's CGAD-related information; and
    6. A requirement that the NAIC or a third-party consultant consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant pursuant to this part.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-909. Sanctions.

Any insurer failing, without just cause, to timely file the CGAD as required in this part is required, after notice and a hearing, to pay a civil penalty of one hundred dollars ($100) per day for each day of delay, to be recovered by the commissioner, which must be paid into the general fund of this state. The maximum penalty under this section is ten thousand dollars ($10,000). The commissioner may reduce the civil penalty if the insurer demonstrates to the commissioner that imposition of the civil penalty would constitute a financial hardship to the insurer in the commissioner's sole discretion.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

56-2-910. Severability.

If any provision of this part other than § 56-2-907, or the application of this part to any person or circumstance, is held invalid, such determination shall not affect the provisions or applications of this part that can be given effect without the invalid provision or application, and to that end the provisions of this part, with the exception of § 56-2-907, are severable.

Acts 2018, ch. 873, § 8.

Compiler's Notes. Acts 2018, ch. 873, § 18(c) provided that the act, which enacted this part, §§ 56-2-90156-2-910, shall take effect January 1, 2019 and the requirement to file CGAD shall begin in the 2019 calendar year.

Effective Dates. Acts 2018, ch. 873, § 18(b), (c). January 1, 2019; provided that for purposes of rulemaking the act took effect May 3, 2018.

Chapter 3
Operation of Insurance Companies

Part 1
General Provisions

56-3-101. Investments of insurance companies organized after May 11, 1895.

  1. Every life insurance company doing business in this state, chartered by the laws of this state, shall be required for the better protection of the policyholders, to keep at all times the sum of one hundred thousand dollars ($100,000) invested in bonds, securities, or mortgages on real estate for double the amount loaned, to be certified as safe and worth this amount by the commissioner.
  2. Insurance companies other than life, chartered by the laws of this state, shall not be allowed to transact business in this state unless possessed of at least fifty thousand dollars ($50,000) paid up, actual cash capital, or, in lieu of cash capital, a stock guaranty capital or surplus, above all liabilities, including reinsurance reserve, of not less than fifty thousand dollars ($50,000).
  3. This section shall not apply to companies organized under the laws of this state prior to May 11, 1895, and actually engaged in the transaction of insurance business.

Acts 1895, ch. 160, § 13; Shan., § 3296; Code 1932, § 6112; T.C.A. (orig. ed.), §§ 56-214, 56-303.

Cross-References. Captive insurance companies, title 56, ch. 13.

Deposit with treasurer of state or other officer by company organized on or after January 1, 1967, § 56-2-104.

Investment in bonds and obligations of the Tennessee Valley Authority, § 35-3-119.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 118; 21 Tenn. Juris., Process, § 8.

56-3-102. [Repealed.]

Acts 1907, ch. 454, § 2; 1925, ch. 66, § 1; Shan., § 3348a34; Code 1932, § 6209; T.C.A. (orig. ed.), § 56-215; impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-304; repealed by Acts 2018, ch. 873, § 9, effective May 3, 2018.

Compiler's Notes. Former §  56-3-102 concerned contingency reserves.

56-3-103. Officers must not be pecuniarily interested in investment or disposition of funds of domestic company.

  1. No director or other officer of any domestic insurance company organized under the laws of this state, and no member of a committee having any authority in the investment or disposition of its funds, shall accept, or be the beneficiary of, either directly or remotely, any fee, brokerage, commission, gift, or other consideration for or on account of any loan, deposit, purchase, sale, payment, or exchange made by or in behalf of the company, or be pecuniarily interested in the purchase, sale, or loan, either as borrower, principal, coprincipal, agent, or beneficiary, except that if a policyholder, the person shall be entitled to all the benefits accruing under the terms of the contract; provided, that this section shall not forbid the collection by attorneys of reasonable fees for the examination of titles and investigations of loans and investments. This section shall not bar a person who is an agent of an insurance company, in the normal course of business, from serving on the board or on a committee of an insurance company because the person receives commissions on insurance sales.
  2. This section shall not bar or limit the ability of a director, officer, or committee member of an insurance company from:
    1. Holding or owning stock or other ownership interest, if the stock or ownership interest has been disclosed to the insurance company, in a company or entity:
      1. The shares of which are publicly traded on a national stock exchange or on an over-the-counter basis;
      2. That is regulated by the federal reserve board, the federal deposit insurance corporation, the office of the comptroller of the currency, or the office of thrift supervision; or
      3. That does business with the insurance company in the ordinary course of business and on terms no less favorable to the insurance company than are available to ordinary customers of the entity;
    2. Receiving dividends or other distributions in the ordinary course of business from the stock or ownership interest; or
    3. Serving as a director, officer, committee member, employee or agency of any entity listed in this subsection (b) and receiving fees or other compensation in the ordinary course of business for the service.

Acts 1917, ch. 124, § 1; Shan., § 3369a148; Code 1932, § 6441; T.C.A. (orig. ed.), §§ 56-221, 56-310; Acts 1995, ch. 219, § 1; 1995, ch. 221, § 7; 2005, ch. 101, § 1.

Compiler's Notes. Acts 1995, ch. 221, § 7, effective May 12, 1995, made an amendment identical to that made by Acts 1995, ch. 219, § 3.

56-3-104. Investments of domestic company in which officers pecuniarily interested not to be allowed as an admitted asset.

No funds of a company invested in violation of § 56-3-103 shall be allowed by the commissioner as an admitted asset of the company.

Acts 1917, ch. 124, § 2; Shan., § 3369a149; Code 1932, § 6442; T.C.A. (orig. ed.), §§ 56-222, 56-311.

56-3-105. Regulation of compensation of officers, agents and employees of life insurance companies and fraternal benefit societies.

  1. A domestic stock or mutual life insurance company or fraternal benefit society shall not:
    1. Pay any salary, compensation or emolument to any director or trustee regardless of amount, or to any officer, employee or other person, firm or corporation amounting in any one (1) year to more than the amount set forth in the appropriate schedule of the annual statement filed with the commissioner pursuant to § 56-1-501, unless the payment has first been authorized by a vote of the board of directors of the company or society;
    2. Pay any other compensation or emolument to any officer, director or trustee of the company or society who is paid a salary for services of more than one hundred dollars ($100) per month; or
    3. Enter into an agreement for a term longer than twelve (12) months from the date of the agreement with any officer, director, trustee or salaried employee of the company or society providing for the payment of any salary, compensation or emolument for any services rendered or to be rendered.
  2. This section shall not prohibit the life insurance company or society from entering into an agreement with:
    1. Any officer or employee of the company or society for the payment of deferred compensation beyond the period of twelve (12) months from the date of the agreement;
    2. Any officer or employee of the company or society for a stock option plan, stock purchase plan, stock bonus plan, or other incentive compensation plan, if, before the plan is entered into or becomes effective, it is first approved by the commissioner;
    3. Any agent, general agent or district manager of the company or society providing for the payment of commissions on the regular commission basis; or
    4. Any agent of the company or society providing for the payment of renewal commissions.
  3. No domestic or foreign life insurance company or society doing business in this state shall calculate or pay, directly or indirectly, the compensation of any officer, director or trustee of the company or society as a percentage of the premiums collected or the insurance written by the company or society unless it first obtains the approval of the commissioner.

Acts 1907, ch. 440, § 1; Shan., § 3348a25; Code 1932, § 6196; Acts 1959, ch. 84, § 1; 1961, ch. 34, § 1; 1967, ch. 30, § 1; 1969, ch. 161, § 1; impl. am. Acts 1971, ch. 137, § 2; 1977, ch. 11, § 1; T.C.A., §§ 56-231, 56-321; Acts 1981, ch. 269, § 1.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 118; 21 Tenn. Juris., Process, § 8.

Law Reviews.

Venue — Localizing Transitory Actions in Tennessee Civil Proceedings, 35 Tenn. L. Rev. 520.

Collateral References.

Salaries of officers of insurance companies, public control of. 50 A.L.R. 481.

56-3-106. Pensions to officers, directors, or trustees, or to members of their families prohibited to domestic stock or mutual life insurance companies or fraternal benefit societies — Employees' retirement plans permitted.

  1. No domestic stock or mutual life insurance company or fraternal benefit society shall grant any pension to any officer, director or trustee of the company or society, or to any member of the person's family after the person's death, or to any other person whomsoever except that the company or society may provide for an employees' retirement plan for its employees, which plan may or may not require contributions from the employees.
  2. Before the company or society enters into the employees' retirement plan, it shall first submit that plan to the commissioner for approval pursuant to the requirements of this section, and the plan shall not become effective until it has been so approved. After the effective date of the plan, the commissioner may, upon a finding that the plan no longer meets the requirements of this section, order the company or society to discontinue contributions to the plan for a specified time with renewal of the contributions to be subject to the commissioner's subsequent approval.
  3. The commissioner shall approve, or continue the approval of, an employees' retirement plan that meets the following requirements:
    1. No benefit payment can be made to any employee under the plan until the entire reserve required for the benefit payment to the employee has been accumulated and set aside; and
    2. If the plan is established for any classification of the employees of the company or society, such as home office employees, detached office employees, field representatives, agents, etc., it provides for participation and benefits on a nondiscriminatory basis for all employees in each classification who may elect to participate in the plan.
  4. As used in this section, “employees” includes all persons employed by the company or society in any capacity, but does not include any director or trustee of the company or society who serves in that capacity only.

Acts 1907, ch. 440, § 2; Shan., § 3348a26; Acts 1931, ch. 78, § 1; Code 1932, § 6197; 1933, ch. 150, § 1; 1939, ch. 72, § 1; C. Supp. 1950, § 6197; T.C.A. (orig. ed.), § 56-231; Acts 1969, ch. 161, § 2; impl. am. Acts 1971, ch. 137, § 2; 1978, ch. 559, § 1; T.C.A. (orig. ed.), § 56-322.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Constitutional Law, § 58; 15 Tenn. Juris., Insurance, §§ 82, 87.

56-3-107. Disbursements by life insurance companies to be upon vouchers or affidavits.

  1. No life insurance company doing business in this state shall make any payment out of its funds amounting to one hundred dollars ($100) or more unless the payment is evidenced by a voucher signed by or on behalf of the person receiving the money and correctly describing the consideration for the payment. If the payment is for both services and other purposes, the voucher shall set forth an itemized statement of the specific services rendered and of all other expenditures. If the expenditure is in connection with any matter pending before any legislative or public body or before any department or officer of any state or government, the voucher shall correctly describe, in addition, the nature of the matter and the interest of the company.
  2. When the voucher cannot be obtained, the expenditure shall be evidenced by an affidavit describing the character and object of the expenditure and stating the reason for not obtaining the voucher.

Acts 1907, ch. 439, § 1; Shan., § 3348a24; Code 1932, § 6195; T.C.A. (orig. ed.), §§ 56-224, 56-328.

Collateral References.

Insurer's liability for consequential or punitive damages for wrongful delay or refusal to make payments due under contracts. 47 A.L.R.3d 314.

56-3-108. Dividends — Unauthorized payment — Penalty.

  1. It is not lawful for the directors, trustees, or managers of any insurance company incorporated by the laws of this state to make any dividend except from the surplus profits.
  2. Any dividend made contrary to this chapter shall subject the company making the dividend to a forfeiture of its charter, and each stockholder receiving it to a liability to the creditors of the company to the extent of double the amount of the dividend declared.

Acts 1895, ch. 160, § 25; Shan., § 3309; Code 1932, § 6129; T.C.A. (orig. ed.), §§ 56-234, 56-329.

Law Reviews.

Legal Problems in the Organization and Operation of Group Health Plans (Horace P. Hansen), 5 Vand. L. Rev. 14 (1951-1952).

56-3-109. Dividends — Illegal division — Directors' liability to creditors.

Moneys received as premiums upon risks undetermined and outstanding, at the time of declaring any dividend, shall not be considered as profits, earned and divided as such; and if any loss should happen impairing the capital stock, no dividend shall be declared until the capital stock is made good; and if a dividend is declared, contrary to this prohibition, the directors consenting to the dividend shall be liable to make good to the creditors of the company, if their claims cannot otherwise be satisfied, the amount of dividends thus illegally divided.

Acts 1875, ch. 142, § 10; Shan., § 2266; Code 1932, § 3978; T.C.A. (orig. ed.), §§ 56-235, 56-330.

56-3-110. Unclaimed dividends — Publication.

Every insurance company doing business in this state shall, on January 1 of each year, and for thirty (30) days thereafter, cause to be published, in one (1) newspaper printed in the city of Nashville, a full and accurate statement, verified by the oath of the presiding officer, of the dividends and profits declared and payable upon stocks, bonds, or other evidences of indebtedness that remain unclaimed by the person entitled to the dividends and profits.

Code 1858, § 1830; Shan., § 3346; Code 1932, § 6171; T.C.A. (orig. ed.), §§ 56-236, 56-331.

Compiler's Notes. This section may be affected by § 66-29-107, pursuant to § 66-29-132, concerning disposition of undistributed dividends and distributions.

56-3-111. Certain insurance companies to report settlement or judgment in health care liability claims.

  1. Insurance companies providing insurance coverage against civil liability for the death or personal injury of any person as the result of negligence or health care liability in the rendering of professional services by a licensed physician, either doctor of osteopathic medicine or doctor of medicine, or by a licensed dentist shall report to the state board of medical examiners or state board of osteopathic examination or the state board of dentistry any settlement of a claim or judgment, sealed, confidential or otherwise, of five thousand dollars ($5,000) or more that arises out of a claim of negligence or health care liability on the part of an insured physician or dentist as distinguished from administrative matters. The report shall be made within thirty (30) days of the settlement or judgment and shall contain only the following information:
    1. The name and address of the licensed physician or dentist;
    2. The name and address of the plaintiff;
    3. The name of the patient, if different from the plaintiff;
    4. The name and location of the court in which a claim was filed, if any;
    5. The amount of any judgment or settlement; and
    6. The identity of the insurance company and the person filling out the report.
  2. The reports shall be confidential, shall not be subject to public inspection, shall not be subject to subpoena or used as evidence in any legal proceeding, civil or criminal; provided, however, that the reported judgments and settlements contained in the reports, except those that are ordered sealed or to remain confidential by a court of competent jurisdiction, may be used to fulfill the requirements of the Health Care Consumer Right to Know Act of 1998, compiled in title 63, chapter 32, but may not be used to initiate or prosecute any administrative proceeding before the board for licensing health care facilities.
  3. No insurance company, official, or other person authorized by an insurance company to issue the reports shall be liable for filing reports in accordance with this section, so long as the report is not disclosed to anyone other than authorized personnel of the state board of medical examiners, state board of osteopathic examination or the state board of dentistry, or the reported judgments and settlements contained in the reports, except those that are ordered sealed or to remain confidential by a court of competent jurisdiction are used to fulfill the requirements of the Health Care Consumer Right to Know Act of 1998.

Acts 1979, ch. 166, § 1; T.C.A., § 56-340; Acts 1996, ch. 713, § 1; 2004, ch. 902, § 3; 2012, ch. 798, § 18.

Cross-References. Confidentiality of public records, § 10-7-504.

56-3-112. [Repealed.]

Acts 1980, ch. 503, § 1; 1995, ch. 363, § 9; repealed by Acts 2012, ch. 680, § 3, effective July 1, 2012.

Compiler's Notes. Former § 56-3-112 concerned the deposit of securities in a clearing corporation or federal reserve bank.

56-3-113. Valuation of bonds.

  1. All bonds permitted by this chapter or other evidences of debt having a fixed term and rate of interest held by an insurer may, if amply secured and not in default as to principal or interest, be valued as follows:
    1. If purchased at par, at the par value;
    2. If purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made, or in lieu of that method, according to the accepted method of valuation approved by the department; and
    3. The purchase price shall in no case be taken at a higher figure than the actual market value at the time of purchase, plus actual brokerage, transfer, postage or express charges paid in the acquisition of the securities.
  2. The department shall have full discretion in determining the method of calculating values according to the rules set forth in this section, but the method or valuation shall not be inconsistent with any applicable valuation or method used by insurers in general, or the method then currently formulated or approved by the National Association of Insurance Commissioners or its successor organization.

Acts 1991, ch. 142, § 2.

56-3-114. Valuation of securities.

  1. Securities, other than those referred to in § 56-3-113, held by an insurer shall be valued, in the discretion of the department, at their market value, at their appraised value, or at prices determined by it as representing their fair market value. Nothing in this section applies to loans secured by mortgages upon improved real property or upon leasehold estates in improved real property, which shall continue to be valued on the basis of amortization to maturity.
  2. Preferred or guaranteed stocks or shares, while paying full dividends, may be carried at a fixed value in lieu of market value, at the discretion of the department and in accordance with the method of valuation it approves.
  3. Stock of a subsidiary corporation of an insurer shall not be valued at an amount in excess of the net value of the stock as based upon those assets only of the subsidiary that would be eligible under this chapter for investment of the funds of the insurer directly.
  4. No valuations under this section shall be inconsistent with any applicable valuation or method then currently formulated or approved by the National Association of Insurance Commissioners or its successor organization.
  5. Before the commissioner takes any action pursuant to this section, the commissioner shall give written notice to the insurer involved, stating specifically the nature of the alleged violation, and fixing a time and place, at least ten (10) days thereafter, when a hearing on the matter shall be held. The burden of proof shall be on the commissioner to show the lack of statutory criteria by the preponderance of the evidence. After the hearing, or upon failure of the accused to appear at the hearing, the commissioner, if the commissioner finds a violation, may enter an appropriate order under this section as the commissioner deems advisable.
  6. When the commissioner takes action in any or all of the ways set out in this section, the party aggrieved may appeal from the action to the chancery court of Davidson County.

Acts 1991, ch. 142, § 2.

56-3-115. Bonds or other evidences of debt of a domestic insurance company — Reinsurance liability — Limitations.

Notwithstanding § 56-1-405, where bonds or other evidences of debt having a fixed term and rate of interest, or shares of capital stock of a federal home loan bank, owned by a domestic insurance company are held by or on behalf of another person in connection with a reinsurance liability of, or an indebtedness incurred to a federal home loan bank by the domestic insurance company, the amount allowed as a credit against the liability or indebtedness shall be determined in the manner provided for in § 56-3-113 or § 56-3-303(a)(4), as applicable, and the commissioner may allow the excess, if any, of the amount of the bonds or other evidences of debt or shares of capital stock over the amount of the liability or indebtedness to constitute an admissible asset of the domestic insurance company, but only if and to the extent that the bonds or other evidences of debt or shares of capital stock would constitute admissible assets except for being so held in connection with a reinsurance liability or indebtedness to a federal home loan bank; provided, that the total amount of the excess that a domestic insurance company may take into account as an admissible asset shall not exceed thirty percent (30%) of the company's capital and surplus as determined on December 31 of the year preceding the date of the determination.

Acts 1999, ch. 394, § 2; 2006, ch. 534, § 1.

Compiler's Notes. Former § 56-3-115, concerning property and casualty insurers, was transferred to § 56-3-116 in 1999.

56-3-116. Property and casualty insurers — Risk limitations — Applicability.

  1. No insurance company engaged in the business of property and casualty insurance shall retain a maximum net amount on any single risk in excess of ten percent (10%) of the company's capital, or surplus funds, if the insurer is a mutual, reciprocal or Lloyd's plan insurer.
  2. This section does not apply to any company organized pursuant to chapter 13 of this title except for risk retention groups as defined in 15 U.S.C. §  3901 et seq. and 42 U.S.C. § 9671.

Acts 1991, ch. 142, § 2; 1999, ch. 394, § 1; T.C.A. § 56-3-115; Acts 2014, ch. 559, § 9.

Compiler's Notes. Former § 56-3-116, concerning foreign and alien insurers, was transferred to § 56-3-117 in 1999.

NOTES TO DECISIONS

1. Insurer's Obligation Under Policy.

An insurer should not be excused from its obligation under a homeowner's policy unless it has been determined that the loss being complained of did not result in substantial part from a risk for which it provided coverage and collected a premium. Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 1991 Tenn. LEXIS 249 (Tenn. 1991).

Collateral References.

Validity, construction, and effect of assault and battery exclusion in liability insurance policy at issue. 44 A.L.R.5th 91.

56-3-117. Foreign and alien insurers — Investments.

  1. The investments of foreign and alien insurers shall be as permitted by the laws of their domicile but shall be of a quality substantially as high as those required under § 56-2-120 or §§ 56-3-113 — 56-3-116 and this section for similar funds of like domestic insurers.
  2. For the purpose of this section, the domicile of an alien insurer, other than insurers formed under the laws of Canada, shall be that state designated by the insurer in writing filed with the commissioner at the time of admission to this state and may be any one (1) of the following states in which:
    1. The insurer was first authorized to transact insurance;
    2. The insurer's principal place of business is located in the United States; or
    3. The larger deposits of trusteed assets of the insurer for the protection of its policyholders and creditors in the United States is held.
  3. If the insurer makes no such designation, its domicile shall be deemed to be that state in which is located its principal place of business in the United States.
  4. In the case of the insurer formed under the laws of Canada or a province of Canada, its domicile shall be deemed to be that province in which its head office is situated.
  5. Before the commissioner takes any action pursuant to this section, the commissioner shall give written notice to the insurer involved, stating specifically the nature of the alleged violation, and fixing a time and place, at least ten (10) days thereafter, when a hearing on the matter shall be held. The burden of proof shall be on the commissioner to show the lack of statutory criteria by the preponderance of the evidence. After the hearing, or upon failure of the accused to appear at the hearing, the commissioner, if the commissioner finds a violation, may enter an appropriate order under this section as the commissioner deems advisable.
  6. When the commissioner takes action in any or all of the ways set out in this section, the party aggrieved may appeal from the action to the chancery court of Davidson County.

Acts 1991, ch. 142, § 2; 1999, ch. 394, § 1; T.C.A. § 56-3-116.

Compiler's Notes. Former § 56-3-117, concerning promulgation of rules and regulations, was transferred to § 56-3-118 in 1999.

56-3-118. Commissioner — Promulgation of rules and regulations.

  1. The commissioner is authorized to promulgate rules and regulations to prescribe minimum standards for the establishment of liabilities and reserves resulting from insurance contracts issued by an insurer, including, but not limited to, unearned premium reserves and liabilities for claims and losses unpaid and incurred but not reported claims. The rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
  2. The rules promulgated under this section shall contain provisions stating that before the commissioner takes any action pursuant to the rules and regulations, the commissioner shall give written notice to the insurer involved, stating specifically the nature of any alleged violation, and fixing a time and place, at least ten (10) days thereafter, when a hearing on the matter shall be held. The burden of proof shall be on the commissioner to show the lack of minimum standards under the rules promulgated under this section by the preponderance of the evidence. After the hearing, or upon failure of the accused to appear at the hearing, the commissioner, if the commissioner finds a violation, may enter an appropriate order under this section as the commissioner deems advisable.
  3. When the commissioner takes action in any or all of the ways set out in this section, the party aggrieved may appeal from the action to the chancery court of Davidson County.

Acts 1991, ch. 142, § 2; 1999, ch. 394, § 1; T.C.A. § 56-3-117.

Part 2
Claims Office Requirements

56-3-201. Soliciting contracts by advertisements — Claims office required.

  1. Any life, accident, hospitalization and health insurance company doing business in this state that solicits applications or offers for contracts or contracts of insurance primarily by mail, radio, television, publication of advertisements in a newspaper, magazine, or by any other printed matter shall provide at least one (1) office for the handling of claims in one (1) of the following cities: Memphis, Nashville, Knoxville or Chattanooga.
  2. Any insurance policy issued for delivery to a resident of this state shall contain information whereby a policyholder may locate the nearest claims office referred to in subsection (a).

Acts 1973, ch. 253, § 1; T.C.A., § 56-352.

56-3-202. Contracts made by resident agent.

Sections 56-3-201 and 56-3-203 do not apply to solicitations, offers, or contracts that are taken or made directly by a duly licensed resident agent.

Acts 1973, ch. 253, § 2; T.C.A., § 56-353.

Collateral References.

Recoverability of punitive damages in action by insured against liability insurer for failure to settle claim against insured. 85 A.L.R.3d 1211.

56-3-203. Failure to provide claims office — Penalty.

Life, accident, hospitalization and health insurance companies that violate § 56-3-201 shall be fined no less than five hundred dollars ($500) nor more than one thousand dollars ($1,000) for each day a violation occurs in each city named in § 56-3-201.

Acts 1973, ch. 253, § 3; T.C.A., § 56-354.

Part 3
Investments of Domestic Life Insurance Companies

56-3-301. Underwriting or participation by domestic life insurance company in offering of securities by another prohibited — Agreement to withhold property from sale prohibited — Regulations on loans.

  1. No domestic life insurance company, whether incorporated by special act or under a general law of this state, shall underwrite or participate in the underwriting of an offering of securities or property by any other person; nor shall the company enter into any agreement to withhold from sale any of its property, but the disposition of its property shall be at all times within the control of its board of directors.
    1. No investment or loan, except policy loans, shall be made by the life insurance company, unless the investment or loan first has been authorized by the board of directors or by a committee appointed by the board and charged with the duty of supervising the investment or loan; provided, that the acquisition and disposal of short-term bonds, debentures, notes, commercial paper, certificates of deposits or similar evidences of indebtedness, having a remaining maturity of ninety (90) days or less, if in accordance with § 56-3-303 and if done under the general supervision and periodic review of the board or a committee appointed by the board, shall not require specific approval of the board or committee.
    2. Membership on the board of directors shall not be a requirement for eligibility to membership on the committee.

Acts 1907, ch. 458, § 1; Shan., § 3348a28; Code 1932, § 6203; T.C.A. (orig. ed.), § 56-216; Acts 1967, ch. 204, § 1; T.C.A. (orig. ed.), § 56-305; Acts 1983, ch. 65, § 1.

Cross-References. Insurance companies, prohibited actions and transactions, § 56-3-408.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

NOTES TO DECISIONS

1. Purpose.

The Tennessee statutes governing domestic life insurance companies severely restrict the use and investment of its assets (see this section and §§ 56-3-30256-3-305) with the underlying purpose of protecting the policyholders, just as the statutes and regulations governing banks are designed to protect depositors. Continental Bankers Life Ins. Co. v. Bank of Alamo, 578 S.W.2d 625, 1979 Tenn. LEXIS 417 (Tenn. 1979).

2. Effect of Notice.

When a bank, acting as a lender, has knowledge that it is dealing with the reserve funds of a life insurance company, it is charged with notice that the use of those funds is regulated and restricted for the protection of policyholders, and at the very least, it is a signal that inquiry and investigation are called for, as distinguished from “assumptions.” Continental Bankers Life Ins. Co. v. Bank of Alamo, 578 S.W.2d 625, 1979 Tenn. LEXIS 417 (Tenn. 1979).

56-3-302. Part definitions.

As used in this part:

  1. “Acceptable collateral” means:
    1. As to securities lending transactions, and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, and as to lending foreign securities, sovereign debt rated NAIC-SVO 1; and
    2. As to repurchase transactions and reverse repurchase transactions, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation;
  2. “Admitted assets” means assets permitted to be reported as admitted assets on the statutory financial statement of the insurer most recently required to be filed with the commissioner, but:
    1. Excluding the assets of separate accounts, the investments of which are not subject to this part;
      1. The amount of the liability recorded on the insurer's statutory balance sheet for:
  1. The return of acceptable collateral received in a reverse repurchase transaction or a securities lending transaction; and
  2. Cash received in a dollar roll transaction;

Shall be deducted from the insurer's admitted assets for the purpose of calculating any limitation in this part that is based upon admitted assets;

“Affiliate” means, as to any person, another person that, directly or indirectly through one (1) or more intermediaries, controls, is controlled by, or is under common control with the person;

“Business entity” includes a sole proprietorship, corporation, limited liability company, association, general or limited partnership, joint stock company, joint venture, mutual fund, bank, trust, real estate investment trust, joint tenancy or other similar form of business organization, whether organized for-profit or not-for-profit;

“Cap” means an agreement obligating the seller to make payments to the buyer with each payment based on the amount by which a reference price or level or the performance or value of one (1) or more underlying interests exceeds a predetermined number, sometimes called the strike rate or strike price;

“Capital and surplus” means the sum of the capital and surplus of the insurer required to be shown on the statutory financial statement of the insurer most recently required to be filed with the commissioner;

(A)  “Cash equivalents” means highly rated, highly liquid and readily marketable investments or securities with a remaining term to maturity of one (1) year or less, which includes money market funds as defined in § 56-3-303(a)(17);

For purposes of subdivision (7)(A), “highly rated” means an investment rated “P-1” by Moody's Investors Service, Inc., or “A-1” by the Standard and Poor's Division of the McGraw Hill Companies, Inc. or its equivalent rating by a nationally recognized statistical rating organization recognized by the NAIC-SVO;

“Collar” means an agreement to receive payments as the buyer of an option, cap or floor and to make payments as the seller of a different option, cap or floor;

“Counterparty exposure amount” means:

For an over-the-counter derivative instrument not entered into pursuant to a written master agreement which provides for netting of payments owed by the respective parties:

The market value of the over-the-counter derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or

Zero (0) if the liquidation of the derivative instrument would not result in a final cash payment to the insurer;

For over-the-counter derivative instruments entered into pursuant to a written master agreement that provides for netting of payments owed by the respective parties, and the domiciliary jurisdiction of the counterparty is either within the United States, or if not within the United States, is within a foreign, not United States, jurisdiction listed in the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC or, if it is no longer being published, the successor publication to the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC, as eligible for netting, the greater of zero (0) or the net sum payable to the insurer in connection with all derivative instruments subject to the written master agreement upon their liquidation in the event of default by the counterparty pursuant to the master agreement, assuming no conditions precedent to the obligations of the counterparty to make such a payment and assuming no set off of amounts payable pursuant to any other instrument or agreement;

For purposes of this subdivision (9), market value or the net sum payable, as the case may be, shall be determined at the end of the most recent quarter of the insurer's fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or a custodian on the insurer's behalf;

(A)  “Derivative instrument” means any agreement, option or instrument, or any series or combinations of an agreement, option or instrument:

To make or take delivery of, or assume or relinquish, a specified amount of one (1) or more underlying interests, or to make a cash settlement in lieu thereof; or

That has a price, performance, value or cash flow based primarily upon the actual or expected price, yield, level, performance, value or cash flow of one (1) or more underlying interests;

(i)  “Derivative instruments” includes options, warrants (not attached to another financial instrument purchased by the insurer), caps, floors, collars, swaps, swaptions, forwards, futures and any other agreements, options or instruments substantially similar thereto, or any series or combinations thereof;

“Derivative instruments” does not include collateralized mortgage obligations, other asset-backed securities, principal-protected structured securities, floating rate securities, or instruments that an insurer is otherwise authorized to invest in or receive under this part other than under § 56-3-303(a)(21), and any debt obligations of the insurer;

“Derivative transaction” means a transaction involving the use of one (1) or more derivative instruments. Dollar roll transactions, repurchase transactions, reverse repurchase transactions and securities lending transactions shall not be included as derivative transactions for purposes of § 56-3-303(a)(21);

“Dollar roll transaction” means two (2) simultaneous transactions with settlement dates no more than ninety-six (96) days apart so that in one (1) transaction an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase from the same business entity, substantially similar securities of the following types:

Mortgage-backed securities issued, assumed or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation or their respective successors; and

Other mortgage-backed securities referred to in § 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. § 77r-1);

“Equity interests” includes common stock, an equity investment in an investment company, other than a money market mutual fund described in § 56-3-303(a)(17), a beneficial interest in a trust or a real estate investment trust, partnership interests, warrants or other rights to acquire equity interests that are created by the person that owns or would issue the equity to be acquired, and equity interests in any business entity, other than preferred stock or shares as described in § 56-3-303(a)(3);

“Fixed charges” includes interest on all obligations and amortization of debt discount and expenses;

“Floor” means an agreement obligating the seller to make payments to the buyer in which each payment is based on the amount by which a predetermined number, sometimes called the floor rate or price, exceeds a reference price, level, performance or value of one (1) or more underlying interests;

(A)  “Foreign investment” means an investment in a foreign jurisdiction, or an investment in a person, real estate or asset domiciled in a foreign jurisdiction. An investment shall not be deemed to be foreign if the issuing person, qualified primary credit source or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless:

The issuing person is a shell business entity; and

The investment is not assumed, accepted, guaranteed or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction;

For purposes of subdivision (16)(A):

“Qualified guarantor” means a guarantor against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction;

“Qualified primary credit source” means the credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction; and

“Shell business entity” means a business entity having no economic substance, except as a vehicle for owning interests in assets issued, owned or previously owned by a person domiciled in a foreign jurisdiction;

“Foreign jurisdiction” means:

A jurisdiction other than a domestic jurisdiction; or

A commonwealth, territory or possession of the United States;

“Forward” means an agreement, other than a future, to make or take delivery in the future of one (1) or more underlying interests, or effect a cash settlement, based on the actual or expected price, level, performance or value of the underlying interests, but does not mean or include spot transactions effected within customary settlement periods, when-issued purchases or other similar cash market transactions;

“Future” means an agreement, traded on a futures exchange, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance or value of, one (1) or more underlying interests;

“Futures exchange” means a foreign or domestic exchange, contract market or board of trade on which trading in futures is conducted and, in the United States, that has been authorized for such trading by the commodities futures trading commission or any successor of the commodities futures trading commission;

“Hedging transaction” means a derivative transaction that is entered into and maintained to manage:

The risk of a change in the value, yield, price, cash flow or quantity of assets or liabilities, or a portfolio of assets and/or liabilities, that the insurer has acquired or incurred or anticipates acquiring or incurring; or

The currency exchange rate risk related to assets or liabilities, or a portfolio of assets and/or liabilities, that an insurer has acquired or incurred or anticipates acquiring or incurring;

“Income generation transaction” means a derivative transaction which is entered into to generate income. A derivative transaction which is entered into as a hedging transaction or a replication transaction shall not be considered an income generation transaction;

“Investment practices” means transactions of the types described in § 56-3-303(a)(10), (15), (18) and (21);

“Market value” means the price for the security or derivative instrument obtained from a generally recognized source or the most recent quotation from the source or, to the extent no generally recognized source exists, the price for the security or derivative instrument as determined pursuant to the terms of the instrument or in good faith by the insurer as can be reasonably demonstrated to the commissioner upon request, plus accrued but unpaid income on the security or derivative instrument to the extent not included in the price as of the date;

“NAIC” means the National Association of Insurance Commissioners;

“NAIC-SVO” means the securities valuation office of the National Association of Insurance Commissioners;

(A)  “Net earnings available for fixed charges” means net income determined on either a consolidated or an unconsolidated basis after allowance for operating and maintenance expenses, depreciation and depletion, and taxes, other than federal and state income taxes, but excluding extraordinary nonrecurring items of income or expense appearing in the regular financial statements of the issuing, assuming or guaranteeing business entity;

In applying tests of “net earnings available for fixed charges” to an issuing, assuming or guaranteeing business entity or a lessee, whether or not in legal existence during the whole of the test period, that has at or prior to the date of investment by the insurance company acquired the assets of any other business entity by purchase, merger, consolidation or otherwise substantially as an entirety, net earnings available for fixed charges of the predecessor or constituent business entity for such portion of the test period as preceded acquisition may be included in the net earnings of the issuing, assuming or guaranteeing business entity or the lessee, in accordance with the consolidated earnings statement covering the period. The requirements imposed by § 56-3-303(a)(2) and (13) upon the issuing, assuming or guaranteeing business entity of the lessee are deemed to have been met if, at the time the investment is made, a business entity that meets the requirements has guaranteed the indebtedness or has otherwise become obligated to pay amounts that are applicable to the payment of and sufficient to discharge the principal of and interest on the indebtedness in accordance with its terms; provided, that in determining whether the requirements have been met, the pro forma annual interest on the indebtedness is included in the fixed charges of the business entity applicable to the test period in question;

“Net earnings available for fixed charges and dividends” are determined in the same manner as net earnings available for fixed charges, but after allowance for federal and state income taxes;

“Obligation” means a note, bond, debenture, trust certificate, equipment trust certificate, production payment, negotiable bank certificate of deposit, bankers' acceptance, asset-backed security, NAIC-SVO credit tenant loan, loan secured by financing a net lease or net leases, and other evidence of indebtedness for the payment of money, or participations, certificates or other evidences of an interest in any of the obligations listed in this subdivision (29), whether constituting a general obligation of the issuer or payable only out of certain revenues or certain funds pledged or otherwise dedicated for payment;

“Option” means an agreement giving the buyer the right to buy or receive, known as a “call option”, sell or deliver, known as a “put option”, enter into, extend or terminate or effect a cash settlement based on the actual or expected price, spread, level, performance or value of one (1) or more underlying interests;

“Over-the-counter derivative instrument” means a derivative instrument entered into with a business entity, other than through a securities exchange, futures exchange, or cleared through a qualified clearinghouse;

“Person” means an individual, a business entity, a multilateral development bank or a government or quasi-governmental body, such as a political subdivision or a government sponsored enterprise;

“Potential exposure” means:

As to a futures position, the amount of initial margin required for that position; or

As to swaps, collars and forwards, one half percent (0.5%) times the notional amount times the square root of the remaining years to maturity;

“Preferred dividend requirements” means dividends at the maximum prescribed rate on all preferred stock of the same class as that being acquired by the insurance company and on all stock ranking as to dividends on a parity with the dividends or prior to the dividends, whether or not the dividends are cumulative;

“Qualified clearinghouse” means a clearinghouse subject to the rules of a securities exchange or a futures exchange that provides clearing services, including acting as a counterparty to each of the parties to a transaction such that the parties no longer have credit risk to each other;

“Replication transaction” means a derivative transaction or combination of derivative transactions effected either separately or in conjunction with cash market investments included in the insurer's investment portfolio in order to replicate the risks and returns of another authorized transaction, investment or instrument and/or operate as a substitute for cash market transactions. A derivative transaction entered into by the insurer as a hedging transaction shall not be considered a replication transaction;

“Repurchase transaction” means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period of time or upon demand;

“Reverse repurchase transaction” means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or upon demand;

“Securities exchange” means:

An exchange registered as a national securities exchange or a securities market registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78 et seq.);

Private Offerings Resales and Trading through Automated Linkages (PORTAL); or

A designated offshore securities market as defined in Securities Exchange Commission Regulation S, 17 CFR part 230;

“Securities lending transaction” means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or upon demand;

“State” includes the several states, the District of Columbia, the Commonwealth of Puerto Rico and the possessions of the United States;

“SVO Rating” means the numerical ranking designation of one (1) through six (6) assigned to securities as determined by the NAIC-SVO;

“Swap” means an agreement to exchange or to net payments at one (1) or more times based on the actual or expected price, yield, level, performance or value of one (1) or more underlying interests;

“Swaption” means an option to purchase or sell a swap at a given price and time or at a series of prices and times. “Swaption” does not mean a swap with an embedded option;

“Underlying interest” means the assets, liabilities or other interests, or a combination of assets, liabilities or other interests, underlying a derivative instrument, such as any one (1) or more securities, currencies, rates, indices, commodities or derivative instruments; and

“Warrant” means an instrument that gives the holder the right to purchase or sell the underlying interest at a given price and time or at a series of prices and times outlined in the warrant agreement.

Acts 1907, ch. 458, § 2; Shan., § 3348a29; Code 1932, § 6204; Acts 1935, ch. 105, § 1; 1937, ch. 76, § 1; 1939, ch. 121, § 1; 1945, ch. 106, §§ 1, 2; 1947, ch. 120, § 1; C. Supp. 1950, § 6204; Acts 1951, ch. 77, § 1; T.C.A. (orig. ed.), § 56-217; Acts 1961, ch. 224, § 1; 1961, ch. 229, § 1; 1965, ch. 63, § 1; modified; T.C.A., § 56-306; Acts 1995, ch. 363, § 10; 1998, ch. 678, § 2.

Cross-References. Investment of insurance company assets, definitions, § 56-3-401.

NOTES TO DECISIONS

1. “Cash Equivalents.”

City did not have to bid the city's recycling contract because the city made no “expenditures” pursuant to the contract, as (1) the city paid no funds, and (2) the city's recyclables were not “cash equivalents.” Rock-Tenn Converting Co. v. City of Memphis, — S.W.3d —, 2014 Tenn. App. LEXIS 555 (Tenn. Ct. App. Sept. 9, 2014).

56-3-303. Authorized investments.

  1. Domestic life insurance companies may, directly or indirectly through an investment affiliate, invest their assets and engage in investment practices as follows:
    1. In obligations, not in default as to principal or interest, that are valid and legally authorized obligations issued, assumed or guaranteed by the United States, or by any state of the United States, or by any county, city, town, village, municipality or district in any state, or by any political subdivision of the county, city, town, village, municipality or district, or by any civil division or public instrumentality of one (1) or more of the governmental units, if, by statutory or other legal requirements applicable to the governmental unit, such obligations are payable, as to both principal and interest, from taxes levied, or by the law required to be levied, upon all taxable property or all taxable income within the jurisdiction of the governmental unit or from adequate special revenues pledged or otherwise appropriated or by the law required to be provided for the purpose of the payment, but not including any obligations payable solely out of special assessments on properties benefited by local improvements;
    2. In obligations, or in commercial paper or bankers' acceptances, or similar evidences of indebtedness customarily issued at a discount from principal value, issued, assumed, or guaranteed by any business entity created or existing under the laws of the United States, or any state of the United States, that are not in default as to principal or interest; provided, that either:
      1. The net earnings of the issuing, assuming or guaranteeing business entity available for its fixed charges for a period of five (5) fiscal years next preceding the date of acquisition by the insurance company have averaged per year not less than one and one half (1.5) times its average annual fixed charges applicable to the period, if during either of the last two (2) years of the period the net earnings have been not less than one and one half (1.5) times its fixed charges for the year; or
      2. Either the obligation is or the issuing, assuming or guaranteeing business entity's or business entities' long-term obligations are rated one (1) of the four (4) highest grades by any of the nationally recognized statistical rating organizations recognized by the NAIC-SVO or one (1), two (2) or three (3) by the NAIC-SVO;
    3. In preferred stock or shares of any business entity created or existing under the laws of the United States or any state of the United States; provided, that:
      1. The aggregate net earnings of the issuing business entity available for its fixed charges and dividends for a period of three (3) fiscal years next preceding the date of acquisition is at least equal to one and one fourth (1.25) times the sum of its aggregate fixed charges, full contingent interest and preferred dividend requirements for the same period or rated one (1) of the four (4) highest grades by any of the nationally recognized statistical rating organizations recognized by the NAIC-SVO or one (1), two (2) or three (3) by the NAIC-SVO; and
      2. The investments made under the authority of this subdivision (a)(3) shall not at any time cause the insurance company's holdings:
        1. Of the preferred stock or shares of any one (1) business entity to exceed two percent (2%) of the admitted assets of the insurance company; or
        2. Of the preferred stock or shares of all business entities to exceed fifteen percent (15%) of the admitted assets of the insurance company;
      1. In equity interests of any solvent business entity created or existing under the laws of the United States or of any state of the United States; provided, that:
        1. If the equity interest is a common stock, the business entity has earned, during the period of five (5) fiscal years next preceding the date of acquisition by the insurance company, an aggregate sum available for dividends upon its common stock or shares equal at least to an aggregate sum that would have been sufficient to pay dividends of six percent (6%) per annum upon the par or stated value of all its common stock or shares outstanding during the period;
        2. If the equity interests are in a real estate company, §§ 56-3-305 and 56-3-306 shall apply with respect to the equity interests and to the real property owned by the real estate company, and the amount invested in the equity interests of the real estate company shall be included with the aggregate of all of the insurance company's holdings and investments for the purposes of § 56-3-305(b);
        3. Investments made under the authority of this subdivision (a)(4)(A) shall not at any time cause the insurance company's holdings of equity interests in:
          1. Any one (1) business entity to exceed one percent (1%) of the admitted assets of the insurance company; or
          2. All business entities to exceed the larger of:
            1. Ten percent (10%) of the admitted assets of the insurance company; or
            2. Fifty percent (50%) of the amount by which the capital and surplus of the insurance company exceed the minimum capital and surplus required for the kind of insurance it is authorized to transact in this state; and
        4. For purposes of determining the holdings of the equity interests pursuant to this subdivision (a)(4)(A), the value of the equity interests shall be the value of the equity interests shown on the insurer's statutory financial statement most recently required to be filed with the commissioner;
      2. The commissioner may approve a plan for an insurer to make investments in equity interests of business entities in an aggregate amount not to exceed an additional ten percent (10%) of its admitted assets if the commissioner determines that the plan contains adequate quality and diversification standards;
      3. Investments made and transactions entered into pursuant to subdivision (a)(20)(A) shall be included in determining an insurer's compliance with subdivision (a)(4)(A) and, if the commissioner has approved a plan for the insurer under subdivision (a)(4)(B), subdivision (a)(4)(B) in the aggregate;
    4. Upon security of promissory notes amply secured by pledge of any bonds or other securities in which the companies are authorized to invest their funds;
    5. Upon the security of their own policies; provided, that the loan upon any policy shall not exceed the amount of loan value provided in § 56-7-2309;
    6. In the obligations, and/or stock where stated, of the following agencies of the government of the United States, whether or not the obligations are guaranteed by the government:
      1. Commodity credit corporation;
      2. Federal intermediate credit banks;
      3. Federal land banks;
      4. Banks for cooperatives;
      5. Federal home loan banks, and stock of such banks;
      6. Federal national mortgage association, and stock of the federal national mortgage association, when acquired in connection with sale of mortgage loans to the association; and
      7. Any other similar agency of the government of the United States and of similar financial quality;
    7. In lawfully authorized bonds or other evidences of indebtedness issued or guaranteed by the International Bank for Reconstruction and Development, or the Inter-American Development Bank, the African Development Bank and the Asian Development Bank; provided, that the aggregate amount of the insurance company's investment under this subdivision (a)(8) shall not exceed five percent (5%) of the admitted assets of the insurance company;
    8. In shares in federally insured building and loan and savings and loan institutions; provided, that the aggregate of investments under this subdivision (a)(9) shall not exceed one percent (1%) of the admitted assets of the insurance company;
    9. In other types of investments and transactions, in addition to those authorized by this section or other sections of the code, subject to the approval of the commissioner. An insurer shall not be required to have exhausted its authority to make investments or engage in transactions under subdivision (a)(15) prior to seeking any approval from the commissioner under this subdivision (a)(10). Any investment made or transaction entered into by an insurer pursuant to approval from the commissioner under this subdivision (a)(10) shall not be required to be taken into account in determining compliance with subdivision (a)(15);
      1. Subject to subdivision (a)(11)(C), in loans, or participations in loans, secured by first mortgages, or second mortgages so long as the insurer holds the first mortgages that are senior to the second mortgages, upon improved, unencumbered real property, or upon leasehold estates in improved real property in the United States, not exceeding, however, seventy-five percent (75%) of the value of the property or leasehold estate, repayable in not more than thirty (30) years;
      2. All loans secured by leasehold estates must provide for amortization of principal at least once in each year in amounts sufficient to completely amortize the loan at least twenty-one (21) years prior to expiration of the lease term, inclusive of the term or terms which may be provided by an enforceable option or options of renewal;
      3. Real property and leasehold estates shall not be deemed to be encumbered within the meaning of this section by reason of the existence of unpaid assessments and taxes not delinquent, mineral, oil or timber rights, easements or rights-of-way for public highways, private roads, railroads, telegraph, telephone, electric light and power lines, drains, sewers or other similar easements or rights-of-way, liens for service and maintenance of water rights when not delinquent, party wall agreements, building restrictions, or other restrictive covenants or conditions, or leases under which rents or profits are reserved to the owner, if in any event the security for the loan is a first lien, or is a second lien so long as the insurer also holds the first lien that is senior to the second lien, upon the real property or leasehold estate and if there is no condition or right of reentry or forfeiture under which, in the case of real property other than leaseholds, the lien can be cut off, subordinated or otherwise disturbed, or under which, in the case of leaseholds, the insurance company is unable to continue the lease in force for the duration of the loan;
      4. A loan guaranteed or insured in full by the Administrator of Veterans' Affairs pursuant to the Servicemen's Readjustment Act of 1944 (38 U.S.C. §§ 3701-3725), may be subject to a prior encumbrance insured by the federal housing administrator or commissioner, and the foregoing limitations in respect to value and repayment shall not apply to a loan that is:
        1. Insured by, or for which a commitment to insure has been made by, the federal housing administrator or commissioner pursuant to the National Housing Act (12 U.S.C. § 371 et seq.);
        2. Guaranteed by the administrator of veterans' affairs pursuant to the Servicemen's Readjustment Act of 1944, except that, if only a portion of a loan is so guaranteed, the limitation of value shall apply to the portion not so guaranteed; or
        3. Insured by the administrator pursuant to the Servicemen's Readjustment Act of 1944;
    10. In purchase money mortgages or like securities received by the insurance company upon the sale or exchange of real property acquired pursuant to § 56-3-305;
      1. In obligations of persons organized under the laws of the United States or any state of the United States, secured by assignment of lease or leases, or the rentals payable under the leases, of real or personal property, or both, to:
        1. The United States or any state of the United States, or any county, city, town, village, municipality or district in the state or any political subdivision of the county, city, town, village, municipality or district or any civil division or public instrumentality of one (1) or more of the governmental entities; or
        2. One (1) or more persons created or existing under the laws of the United States, or of any state; provided, that:
          1. The fixed rentals assigned shall be sufficient to repay the indebtedness within the unexpired term of the lease, exclusive of the term that may be provided by an enforceable option of renewal;
          2. The lessee or guarantor of the lease or leases has not defaulted in payment of principal of or interest on any of its bonds, notes, debentures, or other evidences of indebtedness during the five (5) fiscal years immediately preceding the date of the investment;
          3. The net earnings of each lessee or guarantor of the lease under this subdivision (a)(13)(A)(ii) available for its fixed charges for a period of five (5) fiscal years next preceding the date of acquisition by the insurance company have averaged per year not less than one and one half (1.5) times its average annual fixed charges applicable to the period and during either of the last two (2) years of the period the net earnings have been not less than one and one half (1.5) times its fixed charges for the year or is rated one (1) of the four (4) highest grades by any of the nationally recognized statistical rating organizations recognized by the NAIC-SVO or one (1), two (2) or three (3) by the NAIC-SVO; and
          4. A first lien on the interest of the lessor in the unencumbered property so leased is obtained as additional security for the indebtedness;
      2. Notwithstanding subdivision (a)(13)(A), any NAIC-SVO credit tenant loan that meets the requirements of subdivision (a)(2) shall be qualified under subdivision (a)(2);
    11. In the purchase and ownership of vessels, vehicles, or rolling stock used or useful for the transportation of persons, goods, products or commodities, or of machinery or equipment used by manufacturing, processing or financial establishments, or of communications equipment used by radio or television stations, or of store fixtures used by retail establishments, which transportation equipment, or machinery or equipment, or communications equipment or store fixtures are or will become subject to contracts for the sale or use thereof under which contractual payments are to be made that may reasonably be expected to return the principal of, and provide earnings on, the investment within the anticipated useful life of the property, the anticipated useful life to be not less than five (5) years. The aggregate of the company's investments under this subdivision (a)(14) shall not exceed three percent (3%) of the company's admitted assets;
    12. In loans, investments or transactions in addition to those authorized under other subdivisions of this subsection (a) or under other sections of this code, notwithstanding any limitations or prohibitions contained in § 56-3-305(a)(5) that might otherwise be applicable; provided, that for the purposes of subdivision (a)(11) and this subdivision (a)(15), that the portion of a loan, or participation in the loan, secured by a mortgage upon real property that does not exceed seventy-five percent (75%) of the value of the property shall be deemed to be a permitted investment under subdivision (a)(11) and the remainder of the loan, or participation in the loan, may be deemed to be made under this subdivision (a)(15); and provided further, that for the purposes of § 56-3-305(a)(5)(B), that the portion of an investment in a single piece or adjoining pieces of real property acquired or held under the authority of § 56-3-305 (a)(5) that does not exceed two percent (2%) of the company's admitted assets shall be deemed to be a permitted investment under subdivision (a)(5), and the remainder of the investment shall be deemed to be made under this subdivision (a)(15); and provided, further, that if any investments made or transactions entered into under any other subdivision of this section or § 56-3-304 exceed the limits specified in any other subdivision of this section or § 56-3-304, then the excess portion of the investment or transaction shall be an investment or transaction under this subdivision (a)(15). Any loan, investment or transaction originally made under this subdivision (a)(15) that would subsequently, if it were then being made, qualify as an authorized investment or transaction under another subdivision of this subsection (a) or under another section of this code shall thenceforth be deemed to be an authorized investment or transaction under the other subdivision or section. The aggregate of the company's loans, investments and transactions under this subdivision (a)(15) shall not exceed the lesser of:
      1. Ten percent (10%) of the company's admitted assets; or
      2. The amount by which the capital and surplus of the company exceed the minimum capital and surplus required to form a new company to do the kind or kinds of insurance business the company is authorized to transact in this state; provided, that the limitations established by subdivisions (a)(15)(A) and this subdivision (a)(15)(B) in no event shall be less than five percent (5%) of the admitted assets of the company;
    13. In investment pools that:
      1. Invest only in:
        1. Obligations that an insurer may acquire under this section or § 56-3-304 that are rated one (1) of the four (4) highest grades by any of the nationally recognized statistical rating organizations recognized by the NAIC-SVO or one (1) or two (2) by the NAIC-SVO and have:
          1. A remaining term to maturity of three hundred ninety-seven (397) days or less or a put that entitles the holder to receive the principal amount of the obligation, which put may be exercised through maturity at specified intervals not exceeding three hundred ninety-seven (397) days; or
          2. A remaining term to maturity of three (3) years or less and a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (federal funds, prime rate, treasury bills, London InterBank Offered Rate (LIBOR) or commercial paper) and is subject to no maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes;
        2. Securities lending, repurchase and reverse repurchase transactions that meet the requirements of subdivision (a)(18); and
        3. Money market mutual funds as authorized in subdivision (a)(17); provided, that this short-term investment pool shall not acquire investments in any one business entity that exceed ten percent (10%) of the total assets of the investment pool;
      2. Invest only in investments that an insurer may acquire under this section or § 56-3-304, if the insurer's proportionate interest in the amount invested in these investments does not exceed the applicable limits of this section and § 56-3-304, and the aggregate amount of all investments in the other investment pools may not exceed twenty-five percent (25%) of the insurer's admitted assets;
      3. An insurer shall not acquire an investment in an investment pool under this subdivision (a)(16) if, after giving effect to the investment, the aggregate amount of investments in all investment pools then held by the insurer would exceed thirty-five percent (35%) of its admitted assets;
      4. For an investment in an investment pool to be qualified under this subdivision (a)(16), the investment pool shall not:
        1. Acquire securities issued, assumed, guaranteed or insured by the insurer or an affiliate of the insurer; or
        2. Borrow or incur any indebtedness for borrowed money, except for securities lending and reverse repurchase transactions;
      5. For an investment pool to be qualified under this subdivision (a)(16):
        1. The manager of the investment pool shall:
          1. Be organized under the laws of the United States or a state of the United States or the District of Columbia and designated as the pool manager in a pooling agreement; and
          2. Be the insurer, an affiliated insurer, a business entity affiliated with the insurer, a custodian bank, a business entity registered under the Investment Advisors Act of 1940 (15 U.S.C. §§ 80a-1 et seq.), or any similar, applicable state statute, or, in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact, or in the case of a United States branch of an alien insurer, its United States manager or affiliates or subsidiaries of its United States manager;
        2. The pool manager or an entity designated by the pool manager of the type set forth in subdivision (a)(16)(E)(i)(b ) shall maintain detailed accounting records setting forth:
          1. The cash receipts and disbursements reflecting each participant's proportionate investment in the investment pool;
          2. A complete description of all underlying assets of the investment pool, including amount, interest rate, maturity date, if any, and other appropriate designations; and
          3. Other records that, on a daily basis, allow third parties to verify each participant's investments in the investment pool;
        3. The assets of the investment pool shall be held in one (1) or more accounts, in the name or on behalf of the investment pool, either under a custody agreement or trust agreement with a custodian bank or at the principal office of the pool manager. The applicable agreement shall:
          1. State and recognize the claims and rights of each participant;
          2. Acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and
          3. Contain an agreement that the underlying assets of the investment pool shall not be commingled with the general assets of the custodian bank or any other person;
      6. The pooling agreement for each investment pool shall be in writing and shall provide that:
        1. The insurer, its subsidiaries, affiliates or any pension or profit sharing plan of the insurer, its subsidiaries and affiliates or, in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager, and any unaffiliated insurer shall, at all times, hold one hundred percent (100%) of the interests in the investment pool;
        2. The underlying assets of the investment pool shall not be commingled with the general assets of the pool manager or any other person;
        3. In proportion to the aggregate amount of each pool participant's interest in the investment pool:
          1. Each participant owns an undivided interest in the underlying assets of the investment pool; and
          2. The underlying assets of the investment pool are held solely for the benefit of each participant;
        4. A participant, or in the event of the participant's insolvency, bankruptcy, or receivership, its trustee, receiver, conservator or other successor-in-interest, may withdraw all or any portion of its investment from the investment pool under the terms of the pooling agreement;
        5. Withdrawals may be made on demand without penalty or other assessment on any business day, but settlement of funds shall occur within a reasonable and customary period thereafter; provided, that in the case of publicly traded securities, settlement shall not exceed five (5) business days, and in the case of all other securities and investments, settlement shall not exceed ten (10) business days. Distributions under this subdivision (a)(16) shall be calculated in each case net of all then applicable fees and expenses of the investment pool. The pooling agreement shall provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:
          1. In cash, the then fair market value of the participant's pro rata share of each underlying asset of the investment pool;
          2. In kind, a pro rata share of each underlying asset; or
          3. In a combination of cash and in-kind distributions, a pro rata share in each underlying asset; and
        6. The pool manager shall make the records of the investment pool available for inspection by the commissioner; and
      7. An investment in an investment pool shall not be deemed to be an investment under subsection (b). The formation of an investment pool shall be subject to the reporting requirements of chapter 11 of this title, but investments in and withdrawals and distributions from an investment pool shall not be subject to the reporting requirements;
      1. In money market mutual funds as defined by 17 CFR 270.2a-7 under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), that may be either of the following:
        1. Government money market mutual fund that is a money market mutual fund that:
          1. Invests only in obligations issued, guaranteed or insured by the federal government of the United States or collateralized repurchase agreements composed of these obligations; and
          2. Qualifies for investment without a reserve under the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC or, if it is no longer being published, the successor publication to the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC; or
        2. Class one (1) money market mutual fund that is a money market mutual fund that qualifies for investment using the bond class one (1) reserve factor under the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC or, if it is no longer being published, the successor publication to the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC;
      2. For purposes of complying with this subdivision (a)(17), money market funds qualifying for listing within these categories must conform to the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC or, if it is no longer being published, the successor publication to the the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC;
    14. In securities lending transactions, either directly, or through a custodian bank, or through an agent approved by the commissioner, repurchase transactions, reverse repurchase transactions and dollar roll transactions, subject to the following conditions:
      1. The insurer shall enter into a written agreement for all transactions that shall require each transaction, except dollar roll transactions, to terminate no more than one (1) year from its inception;
      2. Cash received in a transaction under this subdivision (a)(18) shall be invested in accordance with subsection (a) or § 56-3-304 and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. For so long as the transaction remains outstanding, the insurer, its agent or custodian shall maintain, as to acceptable collateral received in a transaction under this subsection (a), either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company or other securities depositories approved by the commissioner:
        1. Possession of the acceptable collateral;
        2. A perfected security interest in the acceptable collateral; or
        3. In the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral; and
      3. The limitations of subdivision (a)(19) shall not apply to the business entity counterparty exposure created by transactions under this subdivision (a)(18). An insurer shall not enter into a transaction under this subdivision (a)(18) if, as a result of and after giving effect to the transaction:
        1. The aggregate amount of securities then loaned, sold to or purchased from any one (1) business entity counterparty under this subdivision (a)(18) would exceed five percent (5%) of its admitted assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or
        2. The aggregate amount of all securities then loaned, sold to or purchased from all business entities under this subdivision (a)(18) would exceed forty percent (40%) of its admitted assets;
      4. The amount of collateral required for securities lending, repurchase and reverse repurchase transactions is the amount required pursuant to the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC or, if it is no longer being published, the successor publication to the Purposes and Procedures Manual of the Securities Valuation Office of the NAIC;
      1. Except as otherwise authorized by subdivisions (a)(4)(B), (10), (15), (16)(A), (17), (18), (22) and (24), an insurer may under this section and § 56-3-304 acquire obligations of, preferred stock or an equity interest in or incur counterparty exposure amounts to any one business entity, or as to asset-backed securities, secured by or evidencing an interest in a single asset or pool of assets, but not to exceed three percent (3%) of the insurer's admitted assets; and provided, that investments and transactions that are subject to subdivisions (a)(3)(B)(i), (a)(4)(A)(iii)(a ) and (a)(20)(B) shall be taken into account in determining compliance with this subdivision (a)(19)(A);
      2. Notwithstanding subdivision (a)(19)(A), asset-backed securities, not in default as to principal or interest, that are issued, assumed, or guaranteed by the United States, or that are required to be considered to be obligations issued by the United States by the federal Secondary Mortgage Market Enhancement Act of 1984 (12 U.S.C. § 1701 et seq.), shall not be subject to the limitations of subdivision (a)(19)(A);
    15. Except as otherwise authorized by subdivisions (a)(10), (15), (18), (22) and (24), an insurer shall not, under this section or § 56-3-304, acquire an obligation of, or preferred stock or an equity interest in or incur a counterparty exposure amount to any person, or as to asset-backed securities, secured by or evidencing an interest in a single asset or pool of assets, if after giving effect to the investment or transaction:
      1. The aggregate amount of the obligations, preferred stock, equity interests and counterparty exposure amounts then held by the insurer that are rated NAIC-SVO 4 or an equivalent rating by any of the nationally recognized statistical rating organizations recognized by the NAIC-SVO would exceed five percent (5%) of its admitted assets; and
      2. Investments made and transactions entered into under the authority of this subdivision (a)(20) shall not at any time cause:
        1. The insurance company's holdings of obligations of preferred stock or equity interests in any one (1) business entity to exceed one percent (1%) of the insurance company's admitted assets;
        2. The insurance company's holdings of asset-backed securities secured by or evidencing an interest in a single asset or pool of assets to exceed one percent (1%) of the insurance company's admitted assets; and
        3. The insurance company's aggregate counterparty exposure amounts with respect to any one (1) business entity to exceed one percent (1%) of the insurance company's admitted assets;
    16. In hedging transactions, income generation transactions and replication transactions as follows:
      1. Prior to entering into any derivative transaction, the board of directors of the insurer shall approve a derivative instruments use plan that:
        1. Describes investment objectives and risk constraints, such as counterparty exposure amounts;
        2. Defines permissible transactions including identification of the risks that may be hedged, the assets or liabilities that may be replicated and permissible types of income generation transactions; and
        3. Requires compliance with internal control procedures;
      2. The insurer shall establish written internal control procedures that provide for:
        1. A quarterly report to the board of directors that reviews:
          1. All derivative transactions entered into, outstanding or closed out;
          2. The results and effectiveness of the derivative instruments program; and
          3. The credit risk exposure to each counterparty for over-the-counter derivative transactions based upon the counterparty exposure amount;
        2. A system for determining whether hedging, income generation and/or replication strategies utilized have been effective;
        3. A system of regular reports, not less frequently than monthly, to management including:
          1. A description of all derivative transactions entered into, outstanding or closed out during the period since the last report;
          2. The purpose of each outstanding derivative transaction;
          3. A performance review of the derivative instruments program; and
          4. The counterparty exposure amounts for over-the-counter derivative transactions;
        4. Written authorizations that identify the responsibilities and limitations of authority of persons authorized to effect and maintain derivative transactions;
        5. Documentation appropriate for each transaction including:
          1. The purpose of the transaction;
          2. The assets or liabilities to which the transaction relates;
          3. The specific derivative instrument used in the transaction;
          4. For over-the-counter derivative instrument transactions, the name of the counterparty and the counterparty exposure amount; and
          5. For exchange-traded derivative instruments, the name of the exchange and the name of the firm that handled the transaction;
      3. Whenever the derivative transactions entered into under this subdivision (a)(21) are not in compliance with this subdivision (a)(21) or, if continued, may now or subsequently create a hazardous financial condition of the insurer that affects its policyholders, creditors or the general public, the commissioner may, after notice and an opportunity for a hearing, order the insurer to take such action as may be reasonably necessary to rectify the noncompliance or the hazardous financial condition, or prevent an impending hazardous financial condition from occurring;
      4. An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of subdivisions (a)(19) and (a)(20);
        1. (a)  Prior to entering into hedging transactions, an insurer must obtain the commissioner's approval of the insurer's plan regarding the use of hedging transactions; provided, that an insurer that has obtained the commissioner's approval to enter into hedging transactions prior to July 1, 1998, shall not be required to obtain the commissioner's approval of the plan;
  2. Subject to subdivision (a)(21)(E)(i)(a ), an insurer may enter into hedging transactions under this subdivision (a)(21)(E), if as a result of and after giving effect to each transaction:
    1. The aggregate statutory financial statement value of all outstanding options, other than collars, caps, floors, swaptions and warrants not attached to another financial instrument purchased by the insurer, pursuant to this subdivision (a)(21)(E), does not exceed seven and one half percent (7.5%) of its admitted assets;
    2. The aggregate statutory financial statement value of all outstanding options, other than collars, swaptions, warrants, caps and floors written by the insurer pursuant to this subdivision (a)(21)(E) does not exceed three percent (3%) of its admitted assets; and
    3. The aggregate potential exposure of all outstanding collars, swaps, forwards and futures entered into or acquired by the insurer pursuant to this subdivision (a)(21)(E) does not exceed six and one half percent (6.5%) of its admitted assets;
      1. Subject to the commissioner's prior approval of the insurer's plan regarding use of income generation transactions, an insurer may enter into an income generation transaction if:
        1. As a result of and after giving effect to the transaction, the aggregate statutory financial statement value of admitted assets that are then subject to call or that generate the cash flows for payments required to be made by the insurer under caps and floors sold by the insurer and then outstanding under this subdivision (a)(21)(F), plus the statutory financial statement value of admitted assets underlying derivative instruments then subject to calls sold by the insurer and outstanding under this subdivision (a)(21)(F), plus the purchase price of assets subject to puts then outstanding under this subdivision (a)(21)(F) does not exceed ten percent (10%) of its admitted assets; and
        2. The transaction is one (1) of the following types and meets the other requirements specified below that are applicable to these types of transactions:
          1. Sales of call options on assets; provided, that the insurer holds or has a currently exercisable right to acquire the underlying assets during the entire period that the option is outstanding;
          2. Sales of put options on assets; provided, that the insurer holds sufficient cash, cash equivalents or interests in a short-term investment pool to purchase the underlying assets upon exercise during the entire period that the option is outstanding, and has the ability to hold the underlying assets in its portfolio. If the total market value of all put options sold by the insurer exceeds two percent (2%) of the insurer's admitted assets, the insurer shall set aside pursuant to a custodial or escrow agreement cash or cash equivalents having a market value equal to the amount of its put option obligations in excess of two percent (2%) of the insurer's admitted assets during the entire period the option is outstanding;
          3. Sales of call options on derivative instruments, including swaptions; provided, that the insurer holds or has a currently exercisable right to acquire assets generating the cash flow to make any payments for which the insurer is liable pursuant to the underlying derivative instruments during the entire period that the call options are outstanding and has the ability to enter into the underlying derivative transactions for its portfolio; and
          4. Sales of caps and floors; provided, that the insurer holds or has a currently exercisable right to acquire assets generating the cash flow to make any payments for which the insurer is liable pursuant to the caps and floors during the entire period that the caps and floors are outstanding;
      2. Subject to the commissioner's prior approval of the insurer's plan regarding use of replication transactions, an insurer may enter into replication transactions; provided, that:
        1. The insurer would otherwise be authorized under this part to invest its funds in the asset being replicated; and
        2. The asset being replicated is subject to all the provisions and limitations on the making of the replicated asset specified in this part with respect to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset;
      3. An insurer may purchase or sell one (1) or more derivative instruments to offset, in whole or in part, any derivative instrument previously purchased or sold, as the case may be, without regard to the quantitative limitations of this subsection (a); provided, that the offsetting transaction utilizes the same type of derivative instrument as the derivative instrument being offset; and
      4. Each derivative instrument shall be:
        1. Traded on a securities exchange;
        2. Entered into with, or guaranteed by, a person;
        3. Issued or written by or entered into with the issuer of the underlying interest on which the derivative instrument is based; or
        4. In the case of futures, traded through a broker that is registered as a futures commission merchant under the Commodity Exchange Act (7 U.S.C. § 1 et seq.), or that has received exemptive relief from registration under rule 30.10 promulgated under the Commodity Exchange Act;
        1. Subject to subdivision (a)(22)(C), if a domestic life insurance company, pursuant to a merger or consolidation, acquires an investment or transaction that was an authorized investment or transaction of the company that was merged or consolidated with the domestic life insurance company but does not qualify as an authorized investment or transaction under this part at the time the merger or consolidation occurs, regardless of whether or not the investment or transaction would be authorized under subdivision (a)(15), then the investment or transaction shall be an authorized investment or transaction under this subdivision (a)(22)(B), and shall not be required to be applied toward the limitations contained in subdivision (a)(15), for a period of five (5) years after the date on which the merger or consolidation occurs, after which period it shall no longer be an authorized investment or transaction under this subdivision (a)(22)(B), unless within the five-year period:
          1. The investment or transaction qualifies as an authorized investment or transaction under another subdivision of this subsection (a) or another section of this code, including, without limitation, subdivision (a)(15) if the domestic life insurance company so elects;
          2. The commissioner authorizes the investment or transaction in the plan of merger or consolidation approved by the commissioner;
          3. The commissioner, upon request of the insurer, authorizes an extension of the five-year time period; or
          4. The commissioner approves the investment or transaction pursuant to this subdivision (a)(22)(B);
        2. The aggregate amount of a domestic life insurance company's investments and transactions under this subdivision (a)(22)(B), excluding investments and transactions authorized under any of subdivisions (a)(22)(B)(i)(a ), (b ) and (d ), shall not exceed twenty-five percent (25%) of the domestic life insurance company's capital and surplus after giving effect to the merger or consolidation;
      5. If a domestic life insurance company, pursuant to a merger or consolidation, acquires a mortgage loan, or participation in the mortgage loan, that would have been authorized under subdivision (a)(11), and under subdivision (a)(15) as to the portion of the mortgage loan, if any, that exceeded seventy-five percent (75%) of the value of the property, at the time the company that was merged or consolidated with the domestic life insurance company invested in the mortgage loan, or participation in the mortgage loan, then the mortgage loan, or participation in the mortgage loan, shall be authorized under subdivision (a)(11), and under subdivision (a)(15) as to the portion of the mortgage loan, if any, that exceeded seventy-five percent (75%) of the value of the property;
      6. The commissioner shall have full discretion in selecting a method for calculating values of investments and transactions that an insurer acquires through a merger or consolidation; provided, that the method is consistent with any applicable provisions of this code and any applicable valuation method that the NAIC is currently using at that time with respect to investments and transactions; if there is a conflict between a provision of this code and an NAIC valuation method, the provision of this code shall control;

        The qualification or disqualification of an investment under one (1) subdivision of this section or section of this code does not prevent its qualification in whole or in part under another section of this code, and an investment authorized by more than one (1) section of this code may be held under whichever authorizing section of this code the insurer elects. An investment or transaction qualified under any section of this code at the time it was acquired or entered into by the insurer shall continue to be qualified under that section of this code. An investment, in whole or in part, may be transferred from time to time, at the election of the insurer, to the authority of any section of this code under which it then qualifies, whether or not it originally qualified under that section of this code;

        The acquisition of subsidiaries by a domestic life insurer shall be subject to the following:

        The percentage authorizations and limitations set forth in any or all of this section and §§ 56-3-304 and 56-3-305, but subject to § 56-3-306, shall apply only at the time of the original acquisition of an investment or at the time a transaction is entered into, and shall not be applicable to the insurer or the investment or transaction thereafter except as provided in subdivision (a)(23). In addition, any investment or transaction, once qualified under any subsection of this section, shall remain qualified notwithstanding any refinancing, restructuring or modification of the investment or transaction; provided, that the insurer shall not engage in any refinancing, restructuring or modification of any investment or transaction for the purpose of circumventing the requirements or limitations of this part. The commissioner shall have full discretion to value investments and transactions that an insurer holds at the time of an examination of the insurer using a method of calculating the values that the commissioner selects in the commissioner's discretion; provided, that the method is consistent with any applicable provisions of this code and any applicable valuation method that the NAIC is currently using at the time with respect to investments and transactions. If there is a conflict between a provision of this code and an NAIC valuation method, the provision of this code shall control. Notwithstanding this subdivision (a)(25), if the commissioner determines that the continued operation of an insurer may be hazardous to its policyholders, its creditors or the general public, then the commissioner may issue an order consistent with applicable statutes requiring the insurer to limit or withdraw from certain investments or transactions or discontinue certain practices as to investments or transactions to the extent the commissioner deems necessary.

        Notwithstanding other subdivisions of this section and § 56-3-304, an insurer may acquire an investment in or enter into a transaction with a business entity in which the insurer already holds one (1) or more investments or with which the insurer has entered into one (1) or more transactions if the investment is acquired or the transaction is entered into in order to protect an investment or transaction previously made in or with that business entity, but the aggregate amount of investments and transactions so acquired and entered into may not exceed five percent (5%) of the insurer's capital and surplus; and

      7. Except as provided in subdivisions (b)(2)(B) and (C), the aggregate amount that may be invested in subsidiaries in the form of common stock, preferred stock or debt obligations shall not exceed the amount by which the capital and surplus of the insurer exceed the minimum capital and surplus required to form a new company to do the kind or kinds of insurance business the insurer is authorized to transact in this state. If the subsidiary to be acquired is one (1) or more insurance companies formed under the laws of a foreign country, the total amount of holding in the foreign companies shall not exceed three percent (3%) of the admitted assets of the domestic life insurance company and shall be included for purposes of the overall limitation on amounts of investments in subsidiaries;
      8. A domestic life insurer may invest in excess of the amount permitted in subdivision (b)(2)(A) in the common stock, preferred stock or debt obligations of one (1) or more investment subsidiaries, subject to the limitations in subdivision (a)(15) and, with the approval of the commissioner, a domestic life insurer may invest any amount in excess of the amount permitted in subdivision (b)(2)(A) in common stock, preferred stock or debt obligations of one (1) or more subsidiaries; provided, that after the investment, the insurer's surplus as regards policyholders shall be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs; and
      9. If the subsidiary acquired by a domestic life insurer is engaged exclusively in holding title to or holding title to and managing or developing real property, the amount of the insurer's investment in the real property shall not be included in calculating the aggregate limit on investments in subsidiaries; provided, that the amount invested in the subsidiary is included with the aggregate of all the insurer's holdings for purposes of § 56-3-305(b), and the real property owned by the subsidiary shall be subject to § 56-3-305(a)(5).

        Investments in common stock, preferred stock or debt obligations of subsidiaries made pursuant to this subsection (b) shall not be limited by or be subject to any of the otherwise applicable authorizations, restrictions or limitations applicable to the investments of domestic life insurers, except as provided in subdivision (b)(2)(C).

    4. Whether any investment pursuant to this subsection (b) meets the applicable requirements of this subsection (b) shall be determined on a pro forma basis immediately after the investment is made, taking into account:
      1. The capital and surplus of the insurer and the minimum capital and surplus required at that time for a new company to do the same kind or kinds of insurance business the insurer is authorized to transact in this state;
      2. The then outstanding principal balance on all previous investments in debt obligations of subsidiaries; and
      3. The original cost or the current book value, whichever is lower, of all previous investments in the common or preferred stock of subsidiaries.
    5. If the insurer ceases to own more than fifty percent (50%) of the stock of a subsidiary, it shall dispose of any investment in the subsidiary made pursuant to this section within three (3) years from the time of cessation of the requisite percentage of ownership, or within a further time that the commissioner prescribes, unless at any time after the investment has been made, the investment has become a permitted investment under any other law governing investments of domestic life insurance companies.
  3. Any investment held by an insurer on or transaction entered into by an insurer prior to March 30, 1998, that was legally authorized at the time it was made, acquired or entered into or that the insurer was authorized to hold or engage in immediately prior to March 30, 1998, but that does not conform to the requirements of this section or § 56-3-304, may continue to be held by or engaged in and considered as an authorized investment or authorized transaction of the insurer; provided, that the investment or transaction is disposed of at its maturity date, if any, or within the time prescribed by the law under which it was acquired, if any; and provided further, in no event shall this subsection (c) alter the legal or accounting status of the investment or transaction.
  4. For purposes of this section, “subsidiary” means a corporation in which the insurer owns and holds more than fifty percent (50%) of the voting stock of the corporation.

With respect to hedging transactions, an insurer shall be able to demonstrate to the commissioner, upon request, the intended hedging characteristics and effectiveness of the hedging transaction or combination of hedging transactions through cash flow testing, duration analysis or other appropriate analysis;

(A)  Nothing in this part prohibits the acquisition by an insurer of additional obligations, securities, or other assets if received as a dividend or as a distribution of assets, nor does this part apply to securities, obligations, or other assets accepted incident to the workout, adjustment, restructuring or similar realization of any kind of investment or transaction when deemed by the insurer's board of directors or by a committee appointed by the board of directors to be in the best interests of the insurer, if the investment or transaction had previously been authorized, nor does this part apply to assets acquired pursuant to a lawful agreement of bulk reinsurance if the assets constituted legal and authorized investments for the ceding company. No obligation, security or other asset acquired as authorized by this subdivision (a)(22) need be qualified under any other subdivision of this section or section of this code; provided, that all assets acquired pursuant to this subdivision (a)(22) shall be subject to the applicable accounting and valuation requirements that are contained in this code;

(1)  A domestic life insurance company at the time of original issue or at any other time may acquire one (1) or more subsidiaries, subject to the limitations in subdivision (b)(2). The subsidiaries may conduct any kind of lawful business and their authority to do so shall not be limited by reason of the fact that they are subsidiaries of a domestic insurer.

Acts 1907, ch. 458, § 2; Shan., § 3348a29; Code 1932, § 6204; Acts 1935, ch. 105, § 1; 1937, ch. 76, § 1; 1939, ch. 121, § 1; 1945, ch. 106, §§ 1, 2; 1947, ch. 120, § 1; C. Supp. 1950, § 6204; Acts 1951, ch. 77, § 1; T.C.A. (orig. ed.), § 56-217; Acts 1961, ch. 224, § 1; 1961, ch. 229, § 1; 1965, ch. 63, §§ 1, 2; 1971, ch. 52, § 1; 1973, ch. 388, §§ 1-4; 1976, ch. 585, § 3; 1978, ch. 512, § 1; 1978, ch. 517, § 1; modified; T.C.A., § 56-306; Acts 1981, ch. 270, § 1; 1983, ch. 65, §§ 2, 3; 1984, ch. 957, § 1; 1995, ch. 363, §§ 11-14; 1998, ch. 678, § 2; 1999, ch. 50, § 1.

Cross-References. Acquiring stock of other insurance company, § 56-3-404.

Insurance companies, eligible investments, § 56-3-409.

Investment in bonds and obligations of the Tennessee valley authority, § 35-3-119.

Investment in obligations of federal housing administration, Federal National Mortgage Association and veterans' administration, § 35-3-120.

Investing in obligations of Public Housing Authority authorized, § 35-3-115.

Investment of assets by domestic insurance companies, § 56-3-402.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 118.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

NOTES TO DECISIONS

1. Purpose.

The Tennessee statutes governing domestic life insurance companies severely restrict the use and investment of its assets with the underlying purpose of protecting the policyholders, just as the statutes and regulations governing banks are designed to protect depositors. Continental Bankers Life Ins. Co. v. Bank of Alamo, 578 S.W.2d 625, 1979 Tenn. LEXIS 417 (Tenn. 1979).

2. Effect of Notice.

When a bank, acting as a lender, has knowledge that it is dealing with the reserve funds of a life insurance company, it is charged with notice that the use of those funds is regulated and restricted for the protection of policyholders, and at the very least, it is a signal that inquiry and investigation are called for, as distinguished from “assumptions.” Continental Bankers Life Ins. Co. v. Bank of Alamo, 578 S.W.2d 625, 1979 Tenn. LEXIS 417 (Tenn. 1979).

3. Purchase of Drainage Bonds.

Life insurance company was not barred by this section from the purchase of bonds of drainage district. State v. Wilson, 179 Tenn. 54, 162 S.W.2d 510, 1942 Tenn. LEXIS 6 (1942).

56-3-304. Foreign investments.

  1. Domestic life insurance companies may, directly or indirectly through an investment affiliate, invest in investments and enter into transactions in Canada that are substantially of the same kinds, classes and investment grades as those eligible for investment under § 56-3-303(a); but the aggregate amount of the investments and transactions that are held at any time by the company shall not exceed ten percent (10%) of its admitted assets, except where a greater amount is permitted pursuant to subsection (b), in which case, this subsection (a) shall not be applicable.
  2. Any domestic life insurance company that is authorized to do business in a foreign country or that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in a foreign country may invest in investments and enter into transactions in the foreign country that are substantially of the same kinds, classes and investment grades as those authorized under § 56-3-303(a); but the aggregate amount of the investments and transactions in a foreign country and of cash in the currency of the country that is at any time held by the company shall not, except as provided in subsection (a), exceed one and one half (1.5) times the amount of its reserves and other obligations under the contracts or the amount which the company is required by law to invest in the country, whichever is greater.
  3. In addition to the foreign investments authorized under subsections (a) and (b), any domestic life insurance company may, directly or indirectly through an investment affiliate, invest in investments and enter into transactions in foreign jurisdictions that are substantially of the same kinds, classes and investment grades as those authorized under § 56-3-303(a); but the aggregate amount of the investments made and transactions entered into pursuant to this subsection (c) shall not exceed the lesser of five percent (5%) of its admitted assets or the amount by which the capital and surplus of the company exceeds the minimum capital and surplus required for the kind or kinds of insurance the company is authorized to transact in this state.
  4. The commissioner may approve a plan for an insurer to make foreign investments and enter into foreign transactions not to exceed an additional fifteen percent (15%) of its admitted assets, if the commissioner determines that the plan contains adequate quality and diversification standards.
  5. Investments and transactions authorized under subsections (a)-(d) shall be subject to the limitations on investments in and transactions with any one (1) issuing business entity, or as to asset-backed securities, secured by or evidencing an interest in a single asset or pool of assets, set forth in § 56-3-303(a)(3), (4), (16), (18) and (19) and to the limitations on the aggregate amount of any insurance company's investments and transactions under § 56-3-303(a)(3), (4), (10), (14)-(16), (18), (20) and (23).
  6. No more than ten percent (10%) of the insurer's admitted assets may be in foreign investments and transactions made under subsections (c) and (d) in the aggregate that are denominated in foreign currency that are not hedged pursuant to § 56-3-303(a)(21).

Acts 1907, ch. 458, § 2; Shan., § 3348a29; Code 1932, § 6204; Acts 1935, ch. 105, § 1; 1937, ch. 76, § 1; 1939, ch. 121, § 1; 1945, ch. 106, §§ 1, 2; 1947, ch. 120, § 1; C. Supp. 1950, § 6204; Acts 1951, ch. 77, § 1; T.C.A. (orig. ed.), § 56-217; Acts 1961, ch. 224, § 1; 1961, ch. 229, § 1; 1965, ch. 63, § 1; modified; T.C.A., § 56-306; Acts 1986, ch. 527, § 1; 1995, ch. 363, § 15; 1998, ch. 678, § 2.

Cross-References. Foreign investments by insurance companies, § 56-3-403.

56-3-305. Domestic life insurance companies may acquire, hold and convey real estate — Purposes — Manner.

  1. A domestic life insurance company may acquire, hold and convey real property only for the following purposes and in the following manner:
    1. The land and the building on the land in which it has its principal office and other real property that is requisite for its convenient accommodations in the transaction of its insurance business, the amount not to exceed ten percent (10%) of its admitted assets, subject, however, to the limitations of subsection (b);
    2. Real property that has been mortgaged to it in good faith by way of security for loans previously contracted or for moneys due;
    3. Real property that has been conveyed to it in satisfaction of debts previously contracted in the course of its dealings;
    4. Real property that has been purchased at sales on judgments, decrees, or mortgages obtained or made for those debts;
    5. Real property that has been acquired for investment purposes; provided, that:
      1. No real property may be acquired or held under the authority of this subdivision (a)(5) unless at the time of acquisition it is already improved and income producing or unless it is improved with due diligence after acquisition so as to produce an income;
      2. No company shall at any one (1) time have more than two percent (2%) of its admitted assets invested in a single piece or adjoining pieces of real property acquired or held under the authority of this subdivision (a)(5); and
      3. No investments under the authority of this subdivision (a)(5) shall be made in hotels, club houses, garages, schools, factories erected and designed for special purposes or agricultural properties, without specific approval in advance by the commissioner.
  2. In no event shall the aggregate of all of a company's holdings and investments, under the authority of subdivisions (a)(1)-(5), exceed ten percent (10%) of the company's admitted assets; provided, that nothing in this subsection (b) shall prevent the acquisition by the company of any property under subdivisions (a)(2)-(4), but properties so acquired shall be held under § 56-3-306.

Acts 1907, ch. 458, § 3; Shan., § 3348a30; Code 1932, § 6205; Acts 1947, ch. 110, § 1; C. Supp. 1950, § 6205; T.C.A. (orig. ed.), § 56-218; impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-307; Acts 1998, ch. 678, § 3.

Cross-References. Insurance company real property holdings, § 56-3-405.

NOTES TO DECISIONS

1. Purpose.

The Tennessee statutes governing domestic life insurance companies severely restrict the use and investment of its assets (see this section and §§ 56-3-30156-3-304) with the underlying purpose of protecting the policyholders, just as the statutes and regulations governing banks are designed to protect depositors. Continental Bankers Life Ins. Co. v. Bank of Alamo, 578 S.W.2d 625, 1979 Tenn. LEXIS 417 (Tenn. 1979).

2. Effect of Notice.

When a bank, acting as a lender, has knowledge that it is dealing with the reserve funds of a life insurance company, it is charged with notice that the use of those funds is regulated and restricted for the protection of policyholders, and at the very least, it is a signal that inquiry and investigation are called for, as distinguished from “assumptions.” Continental Bankers Life Ins. Co. v. Bank of Alamo, 578 S.W.2d 625, 1979 Tenn. LEXIS 417 (Tenn. 1979).

3. Erection of Corporate Home.

The assent or approval of the commissioner for the acquisition of land and the erection of a building for the transaction of the corporate business is not necessary. Volunteer State Life Ins. Co. v. Dunbar, 133 Tenn. 331, 181 S.W. 159, 1915 Tenn. LEXIS 96 (1915).

A broad discretion must be accorded the directors of a life insurance corporation in respect of the character of the building which may be erected for its corporate home; and they may erect a large office building worth more than the combined capital stock and surplus of the company, not all of which building is then necessary or will be necessary in the immediate future for the transaction of its business, for such a building will tend, where the land is very valuable, to reduce its rents. Volunteer State Life Ins. Co. v. Dunbar, 133 Tenn. 331, 181 S.W. 159, 1915 Tenn. LEXIS 96 (1915).

56-3-306. Time for disposal of real estate — Extension of time.

Real property specified in § 56-3-305(a)(2)-(4), which is not necessary for its accommodation in the convenient transaction of its business, shall be sold and disposed of within five (5) years after the company has acquired title to the property, or within five (5) years after the property has ceased to be necessary for the accommodation of its business, and it shall not hold the property for a longer period unless it complies with either of the following:

  1. It shall procure a certificate from the commissioner authorizing an extension of time for the sale of the property, which certificate the commissioner is authorized to issue if, in the commissioner's judgment, it appears that the interest of the company will suffer materially by a forced sale of the property; or
  2. It shall elect to hold the real property as an investment for income purposes under § 56-3-305(a)(5), in which event thereafter the real property shall be considered to have been acquired at a cost equal to its book value at the time of the election and to be held under, and subject to, § 56-3-305(a)(5) and (b). The election in this subdivision (2) may be made only if at the time of election the real property would otherwise qualify as a permissible investment under § 56-3-305(a)(5).

Acts 1907, ch. 458, § 3; Shan., § 3348a31; Code 1932, § 6206; T.C.A. (orig. ed.), §§ 56-219, 56-308; Acts 1983, ch. 65, § 4.

Cross-References. Disposition of insurance company real property, § 56-3-406.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 118.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

56-3-307. Investments or loans of domestic life insurance companies limited.

No domestic life insurance company shall invest or loan its funds in any manner except as provided in §§ 56-3-30156-3-306, except that investments of domestic life insurance companies may include electronic computer or data processing machines or systems heretofore or hereafter purchased for use in connection with the business of the insurer; provided, that the machine or system shall have an original cost of at least fifty thousand dollars ($50,000), and that the amortized value of the machine or system at the end of any calendar year shall not be greater than the original purchase price less ten percent (10%) for each completed year after purchase.

Acts 1907, ch. 458, § 4; Shan., § 3348a32; Code 1932, § 6207; T.C.A. (orig. ed.), § 56-220; Acts 1959, ch. 83, § 1; T.C.A. (orig. ed.), § 56-309.

Cross-References. Investment in bonds and obligations of the Tennessee valley authority, § 35-3-115.

Limitations on insurance company investments, § 56-3-407.

Loans and investments utilizing federal housing administration, Federal National Mortgage Association, and veterans' administration authorized, § 35-3-120.

Part 4
Investments of Other Domestic Insurance Companies

56-3-401. Part definitions.

As used in this part, unless the context otherwise requires:

  1. “Domestic insurance company” means an insurance company, other than life and fraternal insurance companies, nonprofit hospital and medical service corporations, nonprofit dental service corporations, nonprofit vision service corporations and title insurance companies, incorporated under the laws of this state;
  2. “Fixed charges” includes interest on all bonds and other evidence of indebtedness, and amortization of debt discount and expenses;
  3. “Institution” includes a corporation, a joint-stock association and a business trust;
  4. “Net earnings available for fixed charges” means net income determined on either a consolidated or an unconsolidated basis after allowance for operating and maintenance expenses, depreciation and depletion, and taxes, other than federal and state income taxes, but excluding extraordinary nonrecurring items of income or expense appearing in the regular financial statements of the issuing, assuming or guaranteeing institution. In applying the test of “net earnings available for fixed charges” to an issuing, assuming or guaranteeing institution or a lessee, whether or not in legal existence during the whole of the test period, that has at or prior to the date of investment by the insurance company acquired the assets of any other institution by purchase, merger, consolidation or otherwise substantially as an entirety, net earnings available for fixed charges of the predecessor or constituent institution for such portion of the test period as preceded acquisition may be included in the net earnings of the issuing, assuming or guaranteeing institution or the lessee, in accordance with consolidated earnings statement covering the period. The requirements imposed by § 56-3-402(2) and (13) upon the issuing, assuming or guaranteeing institution or the lessee are deemed to have been met if at the time the investment is made an institution that meets the requirements has guaranteed the indebtedness or has otherwise become obligated to pay amounts that are applicable to the payment of and sufficient to discharge the principal of and interest on the indebtedness in accordance with the terms of the indebtedness; provided, that, in determining whether the requirements have been met, the pro forma annual interest on the indebtedness is included in the fixed charges of the institution applicable to the test period in question;
  5. “Net earnings available for fixed charges and dividends” are determined in the same manner as “net earnings available for fixed charges” but after allowance for federal and state income taxes;
  6. “Preferred dividend requirements” means dividends at the maximum prescribed rate on all preferred stock of the same class as that being acquired by the insurance company and on all stock ranking as to dividends on a parity with the dividends or prior to the dividends, whether or not the dividends are cumulative; and
  7. “State” includes the several states, the District of Columbia, the Commonwealth of Puerto Rico and the possessions of the United States.

Acts 1979, ch. 305, § 2; T.C.A., § 56-361.

Cross-References. Investments of domestic insurance company assets, §§ 56-3-303, 56-3-304.

56-3-402. Investment of assets by certain domestic insurance companies.

Domestic insurance companies may invest their assets only as follows:

  1. In bonds or other evidences of indebtedness, not in default as to principal or interest, that are valid and legally authorized obligations issued, assumed or guaranteed by the United States or by any state of the United States, by any county, city, town, village, municipality or district in the state, or by any political subdivision of the state, by any civil division or public instrumentality of one (1) or more of the governmental units, if, by statutory or other legal requirements applicable to the entity, the obligations are payable, as to both principal and interest, from taxes levied, or by the law required to be levied, upon all taxable property or all taxable income within the jurisdiction of the governmental unit or from adequate special revenues pledged or otherwise appropriated or by the law required to be provided for the purpose of the payment, but not including any obligations payable solely out of special assessments on properties benefited by local improvements;
  2. In interest-bearing bonds, debentures, notes or other evidences of indebtedness, or in commercial paper or bankers' acceptances, or similar evidences of indebtedness customarily issued at a discount from principal value, issued, assumed, or guaranteed by any solvent institution created or existing under the laws of the United States or any state of the United States, that are not in default as to principal or interest; provided, that either:
    1. The net earnings of the issuing, assuming or guaranteeing institution available for its fixed charges for a period of five (5) fiscal years next preceding the date of acquisition by the insurance company has averaged per year not less than one and one half (1.5) times its average annual fixed charges applicable to the period, if during either of the last two (2) years of the period the net earnings have been not less than one and one half (1.5) times its fixed charges for the year; or
    2. The issuing, assuming or guaranteeing institution's or institutions' long-term obligations are included in the four (4) highest grades by any of the recognized rating agencies;
    1. In preferred stock or shares of any solvent institution created or existing under the laws of the United States or of any state of the United States; provided, that:
      1. If the stock or shares are cumulative, dividends on the stock or shares are not in arrears, or, if noncumulative, full dividends have been paid in each of the three (3) fiscal years next preceding the date of acquisition by the insurance company;
      2. The aggregate net earnings of the issuing institution available for its fixed charges and dividends for a period of three (3) fiscal years next preceding the date of acquisition is at least equal to one and one fourth (1.25) times the sum of its aggregate fixed charges, full contingent interest and preferred dividend requirements for the same period; and
      3. The investments made under the authority of this subdivision (3) shall not at any time cause the insurance company's holdings:
  1. Of the preferred stock or shares of any one (1) institution to exceed three percent (3%) of the admitted assets of the insurance company; or
  2. Of the preferred stock or shares of all institutions to exceed twenty-five percent (25%) of the admitted assets of the insurance company;

For purposes of determining the holdings of the preferred stock or shares pursuant to subdivision (3)(A), the value of the stock or shares shall be computed at cost or at market on the December 31 preceding, whichever is lower, and, if there is no market on that date, then at cost or book value of that date, whichever is lower;

(A)  In common stock or shares of any solvent institution created or existing under the laws of the United States or of any state of the United States; provided, that:

The institution has earned, during the period of five (5) fiscal years next preceding the date of acquisition by the insurance company, an aggregate sum available for dividends upon its common stock or shares equal at least to an aggregate sum that would have been sufficient to pay dividends of six percent (6%) per annum upon the par or stated value of all its common stock or shares outstanding during the period;

If the stock or shares are in a real estate company, §§ 56-3-405 and 56-3-406 shall apply with respect to the stock or shares and to the real property owned by the real estate company, and the amount invested in the stock or shares of the real estate company shall be included with the aggregate of all of the insurance company's holdings and investments for the purposes of § 56-3-405(6);

Investments made under the authority of this subdivision (4) shall not at any time cause the insurance company's holdings:

Of common stock or shares of any one (1) institution to exceed five percent (5%) of the admitted assets of the insurance company; or

Of common stock of all institutions to exceed either the larger of thirty percent (30%) of the assets of the insurance company or one hundred percent (100%) of the amount by which the capital and surplus of the insurance company exceed the minimum capital and surplus required for the kind of insurance it is authorized to transact in this state;

For purposes of determining the holdings of the common stock or shares pursuant to subdivision (4)(A), the value of the stock or shares shall be computed at cost or at market on the December 31 preceding, whichever is lower, and, if there is no market on that date, then at cost or book value on that date, whichever is lower;

Upon security of promissory notes amply secured by pledge of any bonds or other securities in which the companies are authorized to invest their funds;

Upon security of promissory notes amply secured by pledge of unearned premiums of their own policies;

In the obligations, and/or stock where stated, of the following agencies of the government of the United States, whether or not the obligations are guaranteed by the United States government:

Commodity credit corporation;

Federal intermediate credit banks;

Federal land banks;

Banks for cooperatives;

Federal home loan banks, and stock of such banks;

The Federal National Mortgage Association, and stock of the Federal National Mortgage Association when acquired in connection with sale of mortgage loans to the association; and

Any other similar agency of the government of the United States and of similar financial quality;

In lawfully authorized bonds or other evidences of indebtedness issued or guaranteed by the International Bank for Reconstruction and Development, or the Inter-American Development Bank, the African Development Bank, or the Asian Development Bank;

In shares in federally insured building and loan and savings and loan institutions;

In other good and solvent securities, in addition to those authorized by this section or other sections of the code, subject to the approval of the commissioner;

In loans secured by mortgages upon improved, unencumbered real property, or upon leasehold estates in improved real property in the United States, not exceeding, however, seventy-five percent (75%) of the value of the property or leasehold estate, repayable in not more than thirty (30) years. All loans secured by leasehold estates must provide for amortization of principal at least once in each year in amounts sufficient to completely amortize the loan at least twenty-one (21) years prior to expiration of the lease term, inclusive of the term or terms that may be provided by an enforceable option or options of renewal. Real property and leasehold estates shall not be deemed to be encumbered within the meaning of this section by reason of the existence of unpaid assessments and taxes not delinquent, mineral, oil or timber rights, easements or rights-of-way for public highways, private roads, railroads, telegraph, telephone, electric light and power lines, drains, sewers or other similar easements or rights-of-way, liens for service and maintenance of water rights when not delinquent, party wall agreements, building restrictions, or other restrictive covenants or conditions, or leases under which rents or profits are reserved to the owner, if in any event the security for the loan is a first lien upon the real property or leasehold estate and if there is no condition or right of re-entry or forfeiture under which, in the case of real property other than leaseholds, the lien can be cut off, subordinated or otherwise disturbed, or under which, in the case of leaseholds, the insurance company is unable to continue the lease in force for the duration of the loan. A loan guaranteed or insured in full by the administrator of veterans' affairs pursuant to the Servicemen's Readjustment Act of 1944 (38 U.S.C. §§ 3701-3725), may be subject to a prior encumbrance insured by the federal housing administrator or commissioner, and the foregoing limitations in respect to value and repayment shall not apply to a loan that is:

Insured by, or for which a commitment to insure has been made by, the federal housing administrator or commissioner pursuant to the National Housing Act (12 U.S.C. § 371 et seq.);

Guaranteed by the administrator of veterans' affairs pursuant to the Servicemen's Readjustment Act of 1944 (38 U.S.C. §§ 3701-3725), except that, if only a portion of a loan is so guaranteed, the limitation of value shall apply to the portion not so guaranteed; or

Insured by the administrator pursuant to the Servicemen's Readjustment Act of 1944 (38 U.S.C. §§ 3701-3725);

In purchase money mortgages or like securities received by the insurance company upon the sale or exchange of real property acquired pursuant to § 56-3-405;

In bonds, debentures, notes or other evidences of indebtedness of persons or corporations organized under the laws of the United States, or any state of the United States, secured by assignment of lease or leases, or the rentals payable under the leases, of real or personal property or both to the United States, or any state of the United States, or any county, city, town, village, municipality or district in the state or any political subdivision of the county, city, town, village, municipality or district or any civil division or public instrumentality of one (1) or more of the governmental units, or one (1) or more institutions created or existing under the laws of the United States, or of any state; provided, that:

The fixed rentals assigned shall be sufficient to repay the indebtedness within the unexpired term of the lease, exclusive of the term that may be provided by an enforceable option of renewal;

The lessee has not defaulted in payment of principal of and interest on any of its bonds, notes, debentures, or other evidences of indebtedness during the five (5) fiscal years immediately preceding the date of the investment;

The net earnings of each lessee under this subdivision (13) available for its fixed charges for a period of five (5) fiscal years next preceding the date of acquisition by the insurance company has averaged per year not less than one and one half (1.5) times its average annual fixed charges applicable to the period and during either of the last two (2) years of the period the net earnings have been not less than one and one half (1.5) times its fixed charges for the year; and

A first lien on the interest of the lessor in the unencumbered property so leased shall be obtained as additional security for the indebtedness;

In the purchase and ownership of vessels, vehicles, or rolling stock used or useful for the transportation of persons, goods, products or commodities, or of machinery or equipment used by manufacturing, processing or financial establishments, or of communications equipment used by radio or television stations, or of store fixtures used by retail establishments, which transportation equipment, or machinery or equipment or communications equipment or store fixtures are or will become subject to contracts for the sale or use thereof under which contractual payments are to be made which may reasonably be expected to return the principal of, and provide earnings on, the investment within the anticipated useful life of the property, the anticipated useful life to not be less than five (5) years;

In loans or investments in addition to those permitted in other subdivisions of this section or under other sections of the code, notwithstanding any limitations or prohibitions contained in § 56-3-405(a)(5) that might otherwise be applicable; provided, that for the purposes of subdivision (11) and this subdivision (15), the portion of a loan secured by a mortgage upon real property that does not exceed seventy-five percent (75%) of the value of the property shall be deemed to be a permitted investment under subdivision (11) and the remainder of the loan may be deemed to be made under this subdivision (15); and provided, further, for the purposes of § 56-3-405, that the portion of an investment in a single piece or adjoining pieces of real property acquired or held under the authority of § 56-3-405(5) that does not exceed two percent (2%) of the insurance company's admitted assets shall be deemed to be a permitted investment under § 56-3-404, and the remainder of the investment shall be deemed to be made under this subdivision (15). Any loan or investment originally made under this subdivision (15) that would subsequently, if it were then being made, qualify as a permitted investment under another subdivision of this section or under another section of the code shall thenceforth be deemed to be a permitted investment under the other subdivision or section. The aggregate of the insurance company's loans and investments under this subdivision (15) shall not exceed five percent (5%) of the company's admitted assets; and

In electronic computer or data processing machines or systems purchased for use in connection with the business of the insurer; provided, that the machine or system shall have an original cost of at least fifty thousand dollars ($50,000), and that the amortized value of the machine or system at the end of any calendar year shall not be greater than the original purchase price less ten percent (10%) for each completed year after purchase.

Acts 1979, ch. 305, § 1; T.C.A., § 56-362; Acts 1981, ch. 270, § 2; 1984, ch. 957, § 2.

Cross-References. Investment of assets by domestic insurance companies, §§ 56-3-303, 56-3-304.

56-3-403. Investments in foreign securities and investments.

  1. Domestic insurance companies may invest in, or otherwise acquire or loan upon, securities and investments in Canada that are substantially of the same kinds, classes and investment grades as those eligible for investment under § 56-3-402; but the aggregate amount of the investments that are held at any time by the company shall not exceed ten percent (10%) of its admitted assets, except where a greater amount is permitted pursuant to subsection (b), in which case this subsection (a) shall not be applicable.
  2. Any domestic insurance company that is authorized to do business in a foreign country or that has outstanding insurance, or reinsurance contracts or risks, resident or located in a foreign country may invest in, or otherwise acquire or loan upon, securities and investments in the foreign country that are substantially of the same kinds, classes and investment grades as those eligible for investment under § 56-3-402; but the aggregate amount of the investments in a foreign country and of cash in the currency of the country that is at any time held by the company shall not, except as provided in § 56-3-404(a)(1), exceed one and one half (1.5) times the amount of its reserves and other obligations under the contracts or the amount that the company is required by law to invest in the country, whichever is greater.
  3. In addition to the foreign investments permitted under § 56-3-404(a)(1) and (2), any domestic insurance company may invest in, or otherwise acquire or loan upon, securities and investments in foreign countries that are substantially of the same kinds, classes and investment grades as those eligible for investment under § 56-3-402; but the aggregate amount of the investments made pursuant to this subsection (c) shall not exceed one percent (1%) of its admitted assets.

Acts 1979, ch. 305, § 3; T.C.A., § 56-363.

Cross-References. Foreign investments by insurance companies, § 56-3-304.

56-3-404. Acquisition of stock.

  1. Notwithstanding any of the provisions or limitations of this section or of any other section of this code, a domestic insurance company may, at the time of original issue or at any other time, with the approval of the commissioner, acquire and hold:
    1. More than fifty percent (50%) of the shares of outstanding voting stock of any other solvent insurance company, domestic or foreign;
    2. More than fifty percent (50%) of the shares of outstanding voting stock of any domestic or foreign business corporation other than an insurance company, which corporation was formed or acquired for, and necessary and incidental to, the convenient operation of its insurance business, the administration of any of its lawful investments or the lawful business of any affiliated company; provided, that the stock or shares in any real estate company and the real property owned by the company shall be subject to §§ 56-3-405 and 56-3-406, and the amount invested in the stock or shares shall be included with the aggregate of all the insurance company's holdings and investments for the purposes of § 56-3-405(6); or
    3. Stock of an insurance company formed under the laws of a foreign country, but the aggregate amount of the holdings shall not exceed five percent (5%) of the admitted assets of the insurance company.
  2. The total holdings of a domestic insurance company of shares of voting stock authorized to be acquired and held under this section, together with the investments made under the authority of § 56-3-402(3) and (4), shall not at any time exceed the amount by which the capital and surplus of the company exceed the minimum capital and surplus required for the kind of insurance it is authorized to transact in this state; provided, that for purposes of determining the holdings of the stock pursuant to this section, the value of the stock shall be computed at cost or at market value on the December 31 preceding, whichever is lower and that, if there is no market on that date, then at cost or book value on that date, whichever is lower.

Acts 1979, ch. 305, § 4; T.C.A., § 56-364.

Cross-References. Acquiring stock of other insurance company, § 56-3-303.

56-3-405. Acquisition and conveyance of real property.

Domestic insurance companies may acquire, hold and convey real property only for the following purposes and in the following manner:

  1. The land and the building on the land in which it has its principal office and  other real property that is requisite for its convenient accommodations in the transaction of its insurance business, the amount not to exceed ten percent (10%) of its admitted assets, subject, however, to the limitations of § 56-3-406;
  2. Real property that has been mortgaged to it in good faith by way of security for loans previously contracted or for moneys due;
  3. Real property that has been conveyed to it in satisfaction of debts previously contracted in the course of its dealings;
  4. Real property that has been purchased at sales on judgments, decrees, or mortgages obtained or made for those debts;
  5. Real property that has been acquired for investment purposes; provided, that:
    1. No real property may be acquired or held under the authority of this section unless at the time of acquisition it is already improved and income-producing or unless it is improved with due diligence after acquisition so as to produce an income;
    2. The company shall not at any one (1) time have more than two percent (2%) of its admitted assets invested in a single piece or adjoining pieces of real property acquired or held under the authority of this section; and
    3. No investments under the authority of this section shall be made in hotels, club houses, garages, schools, factories erected and designed for special purposes or agricultural properties, without specific approval in advance by the commissioner; and
  6. In no event shall the aggregate of all of a company's holdings and investments, under the authority of §§ 56-3-401 — 56-3-404, this section and §§ 56-3-406 and 56-3-407, exceed ten percent (10%) of the company's admitted assets; provided, that nothing in this section shall prevent the acquisition by the company of any property under subdivisions (2)-(4), but properties so acquired shall be held under § 56-3-406, and the company shall list the book value of the properties as assets not admitted, to the extent the aggregate of the book value of real estate exceeds ten percent (10%) of the company's admitted assets.

Acts 1979, ch. 305, § 5; T.C.A., § 56-365.

Cross-References. Insurance company real property holdings, § 56-3-305.

56-3-406. Disposition of real property.

All property specified in § 56-3-405(2)-(4), which is not necessary for its accommodation in the convenient transaction of its business, shall be sold and disposed of within two (2) years after the company has acquired title to the property, or within two (2) years after the property has ceased to be necessary for the accommodation of its business; and it shall not hold the property for a longer period unless it procures a certificate from the commissioner authorizing an extension of time for the sale of the property. The commissioner is authorized to issue such a certificate extending the time for the sale of such property if in the commissioner's judgment it appears that the interest of the company will suffer materially by a forced sale of the property.

Acts 1979, ch. 305, § 6; T.C.A., § 56-366.

Cross-References. Disposition of insurance company real property, § 56-3-306.

56-3-407. Manner of investment exclusive.

No domestic insurance company shall invest or loan its funds in any manner except as provided in §§ 56-3-40156-3-406.

Acts 1979, ch. 305, § 7; T.C.A., § 56-367.

Cross-References. Limitations on insurance company investments, § 56-3-307.

56-3-408. Prohibited actions and transactions.

  1. No domestic insurance company, whether incorporated by special act or under a general law of this state, shall underwrite or participate in the underwriting of an offering of securities or property by any other person; nor shall the company enter into any agreement to withhold from sale any of its property, but the disposition of its property shall be at all times within the control of its board of directors.
    1. No investment or loan, except premium finance loans, shall be made by any such insurance company, unless the investment or loan has first been authorized by the board of directors or by a committee appointed by the board and charged with the duty of supervising the investment or loan.
    2. Membership on the board of directors shall not be a requirement for eligibility to membership on the committee.

Acts 1979, ch. 305, § 8; T.C.A., § 56-368.

Cross-References. Insurance companies, prohibited actions and transactions, § 56-3-301.

56-3-409. Eligible investments.

Any particular investment that the insurance company held on September 1, 1979, or was obligated to accept by a legally enforceable commitment effectuated prior to September 1, 1979, and that the insurance company was legally entitled to hold immediately prior to September 1, 1979, shall be deemed to be an eligible investment.

Acts 1979, ch. 305, § 9; T.C.A., § 56-369.

Cross-References. Insurance companies, eligible investments, §§ 56-3-303, 56-3-304.

Part 5
Separate Accounts and Allocations

56-3-501. Separate accounts — Allocation.

    1. Any domestic life insurance company may, subject to the approval of the commissioner, establish one (1) or more separate accounts and may allocate to the separate account or accounts any amounts paid to the company, including, but not limited to, proceeds applied under optional modes of settlement or under dividend options, which are to be applied to the terms of an individual or group contract issued in connection therewith to fund pension or profit-sharing plans or to provide life insurance or annuity benefits, and benefits incidental to the life insurance or annuities, payable in fixed or in variable amounts, or in both.
    2. If and to the extent so provided under the applicable contracts, the assets of the separate account shall not be chargeable with liabilities arising out of any other business the company may conduct.
  1. The company may provide for the owners of the contracts voting rights with respect to management of the separate accounts and investment of the assets of the accounts, and shall have the power to do all things necessary under any applicable state or federal law in order that the contracts may be lawfully sold or offered for sale.
  2. This section shall not in any way affect existing laws pertaining to the voting rights of the company's policyholders.

Acts 1967, ch. 353, § 1; T.C.A., § 56-258; Acts 1968, ch. 450, § 1; 1970, ch. 493, § 1; T.C.A., § 56-312; Acts 1993, ch. 253, § 20.

56-3-502. Investment of amounts allocated to separate accounts.

The amounts allocated to each account and accumulations on the account may be invested and reinvested in any class of investments which may be authorized in the agreement without regard to any requirements or limitations prescribed by the laws of this state governing the investments of life insurance companies; provided, that to the extent that the company's reserve liability with regard to benefits guaranteed as to amount and duration and funds guaranteed as to principal amount or stated rate of interest is maintained in any separate account, a portion of the assets of the separate account at least equal to the reserve liability shall be invested in accordance with the laws of this state governing the investments of life insurance companies. The investments in the separate account or accounts shall not be taken into account in applying the investment limitations applicable to other investments of the company.

Acts 1967, ch. 353, § 2; T.C.A., §§ 56-259, 56-313.

56-3-503. Gains and losses credited to or charged against allocation.

The income, if any, and gains and losses, realized or unrealized, on each account shall be credited to or charged against the amounts allocated to the account in accordance with the agreement, without regard to other income, gains or losses of the company.

Acts 1967, ch. 353, § 3; T.C.A., §§ 56-260, 56-314.

56-3-504. Valuation of assets allocated to separate account.

Assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then in accordance with the terms of the agreement; provided, that the portion of the assets of the separate account at least equal to the company's reserve liability with regard to the guaranteed benefits and funds referred to in § 56-3-502, if any, shall be valued in accordance with the rules otherwise applicable to the company's assets.

Acts 1967, ch. 353, § 4; T.C.A., §§ 56-261, 56-315.

56-3-505. Amounts allocated to be company owned.

Amounts allocated to a separate account in the exercise of the power granted by this part shall be owned by the company.

Acts 1967, ch. 353, § 5; T.C.A., § 56-262; Acts 1968, ch. 450, § 2; T.C.A., § 56-316.

56-3-506. Agreements providing for annuity benefits on a variable basis — Statements required.

If the agreement provides for payment of benefits in variable amounts, it shall contain a statement of the essential features of the procedure to be followed by the company in determining the dollar amount of the variable benefits. The agreement, and any certificate in evidence of variable benefits issued under the agreement, shall state that the dollar amount may decrease or increase and shall contain on its first page a statement that the benefits under the agreement are on a variable basis.

Acts 1967, ch. 353, § 6; T.C.A., § 56-263; Acts 1970, ch. 493, § 2; T.C.A., § 56-317.

56-3-507. Authorization for delivery of agreements providing benefits on a variable basis — Determination of qualification.

No domestic life insurance company, and no other life insurance company admitted to transact business in this state, shall be authorized to deliver within this state any agreement providing benefits in variable amounts until the company has satisfied the commissioner that its condition or methods of operation in connection with the issuance of the agreements will not render its operation hazardous to the public or its policyholders in this state. In determining the qualification of a company requesting authority to deliver the agreements within this state, the commissioner shall consider, among other things:

  1. The history and financial condition of the company;
  2. The character, responsibility and general fitness of the officers and directors of the company; and
  3. In the case of a company other than a domestic company, whether the statutes and regulations of the jurisdiction of its incorporation provide a degree of protection to policyholders and the public that is substantially equal to that provided by this part and the rules and regulations issued under this part.

Acts 1967, ch. 353, § 7; T.C.A., §§ 56-264, 56-318.

56-3-508. Regulation of agreements — Rulemaking power — Licensing.

The commissioner has the sole authority to regulate the issuance and sale of such agreements and to issue reasonable rules and regulations necessary to carry out the purposes and provisions of this part, including licensing the qualifications of the agents or salespersons.

Acts 1967, ch. 353, § 8; T.C.A., §§ 56-265, 56-319.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 118.

56-3-509. Separate accounts — Insurance laws applicable — Required provisions of variable life agreements.

Except for §§ 56-7-401, 56-7-2307(2), (7), (10) and (12), and 56-7-2309, and except as otherwise provided in this part, all pertinent provisions of the insurance laws of this state apply to separate accounts and agreements issued in connection with the accounts. Any individual variable life insurance agreement delivered or issued for delivery in this state shall contain grace, reinstatement and nonforfeiture provisions appropriate to the agreement. The reserve liability for variable benefits shall be established in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.

Acts 1967, ch. 353, § 9; T.C.A., § 56-266; Acts 1970, ch. 493, § 3; T.C.A., § 56-320.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 118.

Part 6
Prohibition on Political Funding [Repealed]

56-3-601. [Repealed.]

Acts 1907, ch. 443, § 1; Shan., § 3369a143; mod. Code 1932, § 6436; T.C.A. (orig. ed.), § 56-225; T.C.A., § 56-323; repealed by Acts 2014, ch. 670, § 1, effective April 14, 2014.

Compiler's Notes. Former part 6, §§ 56-3-601—56-3-605 concerned prohibition on political funding.

56-3-602. [Repealed.]

Acts 1907, ch. 443, § 2; Shan., § 3369a144; Code 1932, § 6437; T.C.A. (orig. ed.), §§ 56-226, 56-324; Acts 1989, ch. 591, § 113; repealed by Acts 2014, ch. 670, § 1, effective April 14, 2014.

56-3-603. [Repealed.]

Acts 1907, ch. 443, § 2; impl. am. Acts 1923, ch. 7, §§ 50, 51; Shan., § 3369a145; Code 1932, § 6438; T.C.A. (orig. ed.), § 56-227; impl. am. Acts 1971, ch. 137, § 2; T.C.A., § 56-325; repealed by Acts 2014, ch. 670, § 1, effective April 14, 2014.

56-3-604. [Repealed.]

Acts 1907, ch. 443, § 3; Shan., § 3369a146; Code 1932, § 6439; T.C.A. (orig. ed.), §§ 56-228, 56-326; repealed by Acts 2014, ch. 670, § 1, effective April 14, 2014.

56-3-605. [Repealed.]

Acts 1907, ch. 443, § 4; Shan., § 3369a147; Code 1932, § 6440; T.C.A. (orig. ed.), §§ 56-229, 56-327; repealed by Acts 2014, ch. 670, § 1, effective April 14, 2014.

Part 7
Restrictions on Beneficial Owners, Directors and Officers

56-3-701. “Equity security” defined.

As used in this part, “equity security” means any stock or similar security, or any security convertible, with or without consideration, into a stock or similar security, or carrying a warrant or right to subscribe or to purchase a stock or similar security; or a warrant or right; or any other security that the commissioner deems to be of similar nature and considers necessary or appropriate, by rules and regulations the commissioner prescribes in the public interest or for the protection of investors, to treat as an equity security.

Acts 1965, ch. 95, § 6; T.C.A., §§ 56-255, 56-337.

56-3-702. Equity securities of domestic stock insurance companies — Statements of beneficial owners, directors and officers.

Every person who is directly or indirectly the beneficial owner of more than ten percent (10%) of any class of any equity security of a domestic stock insurance company, or who is a director or an officer of the company, shall file in the office of the commissioner within ten (10) days after the person becomes the beneficial owner, director, or officer, a statement, in the form the commissioner prescribes, of the amount of all equity securities of the company of which the person is the beneficial owner, and within ten (10) days after the close of each calendar month thereafter, if there has been a change in ownership during that month, shall file in the office of the commissioner a statement, in the form the commissioner prescribes, indicating the ownership at the close of the calendar month and the changes in ownership that have occurred during that calendar month.

Acts 1965, ch. 95, § 1; T.C.A., §§ 56-250, 56-332.

56-3-703. Profits from unfair use of information recoverable — Exceptions.

  1. For the purpose of preventing the unfair use of information that may have been obtained by the beneficial owner, director, or officer by reason of the relationship to the company, any profit realized by the person from any purchase and sale, or any sale and purchase, of any equity security of the company within any period of less than six (6) months, unless the security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the company, irrespective of any intention on the part of the beneficial owner, director, or officer in entering into the transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six (6) months.
  2. Suit to recover the profit may be instituted at law or in equity in any court of competent jurisdiction by the company or by the owner of any security of the company in the name and in behalf of the company, if the company fails or refuses to bring suit within sixty (60) days after request or fails diligently to prosecute it thereafter; but no suit shall be brought more than two (2) years after the date the profit was realized.
  3. This section shall not be construed to cover any transaction where the beneficial owner was not the beneficial owner both at the time of the purchase and sale, or the sale and purchase, of the security involved, or any transaction or transactions that the commissioner by rules and regulations exempts as not comprehended within the purpose of this section.

Acts 1965, ch. 95, § 2; T.C.A., §§ 56-251, 56-333.

56-3-704. Restrictions on sale of equity securities.

It is unlawful for the beneficial owner, director, or officer, directly or indirectly, to sell any equity security of the company, if the person selling the security or the person's principal:

  1. Does not own the security sold; or
  2. If owning the security, does not deliver it against the sale within twenty (20) days thereafter, or does not within five (5) days after the sale deposit it in the mails or other usual channels of transportation; but no person shall be deemed to have violated this section if the person proves that, notwithstanding the exercise of good faith, the person was unable to make the delivery or deposit within that time, or that to do so would cause undue inconvenience or expense.

Acts 1965, ch. 95, § 3; T.C.A., §§ 56-252, 56-334.

56-3-705. Purchases and sales which are exempt.

  1. Section 56-3-703 does not apply to any purchase and sale, or sale and purchase, and § 56-3-704 does not apply to any sale of an equity security of a domestic stock insurance company not then or theretofore held by the dealer in an investment account, by a dealer in the ordinary course of business and incident to the establishment or maintenance by the dealer of a primary or secondary market, otherwise than on an exchange as defined in the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), for the security.
  2. The commissioner may, by rules and regulations the commissioner deems necessary or appropriate in the public interest, define and prescribe terms and conditions with respect to securities held in an investment account and transactions made in the ordinary course of business and incident to the establishment or maintenance of a primary or secondary market.

Acts 1965, ch. 95, § 4; T.C.A., §§ 56-253, 56-335.

56-3-706. Foreign and domestic arbitrage transactions exempt.

Sections 56-3-702 — 56-3-704 do not apply to foreign or domestic arbitrage transactions unless made in contravention of the rules and regulations the commissioner adopts in order to carry out the purposes of this part.

Acts 1965, ch. 95, § 5; T.C.A., §§ 56-254, 56-336.

56-3-707. Conditions exempting equity securities.

Sections 56-3-702 — 56-3-704 do not apply to equity securities of a domestic stock insurance company if:

  1. The securities are registered, or are required to be registered, pursuant to section 12 of the Securities Exchange Act of 1934 (15 U.S.C. § 78l ); or
  2. The domestic stock insurance company does not have any class of its equity securities held of record by one hundred (100) or more persons on the last business day of the year next preceding the year in which equity securities of the company would be subject to §§ 56-3-702 — 56-3-704, except for this subdivision (2).

Acts 1965, ch. 95, § 7; T.C.A., §§ 56-256, 56-338.

56-3-708. Rules and regulations.

  1. The commissioner, with the approval of the attorney general and reporter and in conformity with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, has the power to make rules and regulations necessary for the execution of the functions vested in the commissioner by §§ 56-3-701 — 56-3-707, and may for that purpose classify domestic stock insurance companies, securities, and other persons or matters within the commissioner's jurisdiction.
  2. Nothing in §§ 56-3-702 — 56-3-704 imposing any liability applies to any act done or omitted in good faith in conformity with any rule or regulation of the commissioner, notwithstanding that the rule or regulation may, after the act or omission, be amended or rescinded or determined by judicial or other authority to be invalid for any reason.
  3. The commissioner, with the approval of the attorney general and reporter and in conformity with the Uniform Administrative Procedures also has the power to make rules and regulations necessary to regulate the solicitation of proxies, consents or authorizations in respect to those equity securities subject to §§ 56-3-701 — 56-3-707 issued by domestic stock insurance companies.

Acts 1965, ch. 95, § 8; T.C.A., § 56-257; Acts 1967, ch. 394, § 1; T.C.A., § 56-339.

Part 8
Voluntary Deposit of Securities

56-3-801. Voluntary deposit of securities for protection of state policyholders and creditors.

Any insurance company may deposit and maintain on deposit with the state treasurer, securities as defined in § 56-3-303(a)(1)-(4), (7) and (8), to be held for the exclusive protection of its policyholders and creditors in this state; provided, that the deposit shall not exceed one hundred percent (100%) of that portion of the insurance company's reserves as is fairly allocable to insurance on risks located in this state.

Acts 1973, ch. 104, § 1; T.C.A., § 56-355.

56-3-802. Authority to hold securities.

The commissioner is authorized to accept the deposits, and the state treasurer shall hold the deposits in the same manner as other deposits are held under §§ 56-2-104, 56-2-112 and other applicable sections of this title.

Acts 1973, ch. 104, § 2; T.C.A., § 56-356.

56-3-803. Delivery back to insurance company.

Upon a showing that the interest of Tennessee policyholders will in no way be impaired, an insurance company may demand, and, upon receipt of the demand, the commissioner may deliver over to the insurance company all or any portion of the securities deposited by the insurance company.

Acts 1973, ch. 104, § 3; T.C.A., § 56-357.

56-3-804. Rules and regulations.

Consistent with this title, the commissioner may adopt reasonable rules and regulations for the purpose of implementing this part.

Acts 1973, ch. 104, § 4; T.C.A., § 56-358.

Part 9
Deposit of Securities in Clearing Corporations

56-3-901. Purpose.

The purpose of this part is to authorize insurance companies to utilize modern systems for holding and transferring securities without physical delivery of securities certificates, subject to rules and regulations promulgated by the commissioner pursuant to this part.

Acts 2012, ch. 680, § 4.

Compiler's Notes. Acts 2012, ch. 680, § 5 provided that the commissioner of commerce and insurance is authorized to promulgate emergency rules to implement the act.

56-3-902. Part definitions.

As used in this part:

    1. “Clearing corporation” means:
      1. A corporation as defined in § 8-102(a) of the Uniform Commercial Code, codified in § 47-8-102(a), as adopted by the National Conference of Commissioners on Uniform State Laws and the American Law Institute, as amended from time to time; and
      2. “Treasury/reserve automated debt entry securities system” and “treasury direct” book-entry securities systems established pursuant to 5 U.S.C. Part 301, 12 U.S.C. Part 391 and 31 U.S.C. § 3100 et seq.;
    2. With respect to securities issued by institutions organized or existing under the laws of any foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, “clearing corporation” also means a corporation which is organized or existing under the laws of any foreign country and is legally qualified under such laws to effect transactions in securities by computerized book-entry;
  1. “Commissioner” means the commissioner of commerce and insurance;
  2. “Custodian” means a national bank, state bank, federal home loan bank, trust company or broker/dealer that participates in a clearing corporation; and
  3. “Securities” means instruments as defined in § 8-102(a) of the Uniform Commercial Code, codified in § 47-8-102(a), as adopted by the National Conference of Commissioners on Uniform State Laws and the American Law Institute, as amended from time to time.

Acts 2012, ch. 680, § 4.

Compiler's Notes. Acts 2012, ch. 680, § 5 provided that the commissioner of commerce and insurance is authorized to promulgate emergency rules to implement the act.

56-3-903. Use of book-entry systems.

    1. A domestic insurance company may deposit, or arrange for the deposit of, securities held in or purchased for its general account and its separate accounts in a clearing corporation.
    2. When securities are deposited with a clearing corporation:
      1. Certificates representing securities of the same class of the same issuer may be merged and held in bulk in the name of the nominee of such clearing corporation with any other securities deposited with such clearing corporation by any person, regardless of the ownership of such securities; and
      2. Certificates representing securities of small denominations may be merged into one (1) or more certificates of larger denominations.
    3. The records of any custodian through which an insurance company holds securities in a clearing corporation shall at all times show that such securities are held for such insurance company and for which accounts.
    4. Ownership of, and other interest in, such securities may be transferred by bookkeeping entry on the books of such clearing corporation without physical delivery of certificates representing such securities.
  1. The commissioner is authorized to promulgate rules and regulations governing the deposit by insurance companies of securities with clearing corporations, including establishing standards for national banks, state banks, federal home loan banks, trust companies and broker/dealers to qualify as custodians for insurance company securities.

Acts 2012, ch. 680, § 4.

Compiler's Notes. Acts 2012, ch. 680, § 5 provided that the commissioner of commerce and insurance is authorized to promulgate emergency rules to implement the act.

56-3-904. Deposit of securities by domestic insurance companies.

    1. Securities qualified for deposit under § 56-2-104 may be deposited with a clearing corporation.
    2. Securities deposited with a clearing corporation and used to meet the deposit requirements set forth in § 56-2-104 shall be under the control of the commissioner and shall not be withdrawn by the insurance company without the approval of the commissioner.
  1. Any insurance company holding securities as provided in subsection (a) shall provide to the commissioner evidence issued by its custodian through which the insurance company has deposited securities in a clearing corporation, in order to establish that:
    1. The securities are actually recorded in an account in the name of the custodian; and
    2. The records of the custodian reflect that such securities are held subject to the order of the commissioner.

Acts 2012, ch. 680, § 4.

Compiler's Notes. Acts 2012, ch. 680, § 5 provided that the commissioner of commerce and insurance is authorized to promulgate emergency rules to implement the act.

56-3-905. Deposit of securities by insurance companies.

    1. Securities eligible for deposit under the insurance laws of this state relating to deposit of securities by an insurance company as a condition of commencing or continuing to do any insurance business in this state may be deposited with a clearing corporation.
    2. Securities deposited with a clearing corporation and used to meet the deposit requirements under the insurance laws of this state shall be under the control of the commissioner and shall not be withdrawn by the insurance company without the approval of the commissioner.
  1. Any insurance company holding such securities as provided in subsection (a), shall provide to the commissioner evidence issued by its custodian in order to establish that:
    1. The securities are actually recorded in an account in the name of the custodian; and
    2. The records of the custodian reflect that such securities are subject to the order of the commissioner.

Acts 2012, ch. 680, § 4.

Compiler's Notes. Acts 2012, ch. 680, § 5 provided that the commissioner of commerce and insurance is authorized to promulgate emergency rules to implement the act.

Chapter 4
Fees and Taxes

Part 1
Fees

56-4-101. Schedule and applicability of fees.

  1. The commissioner shall collect and pay into the state treasury the following nonrefundable fees:
    1. For receiving and reviewing each new application for admission from every foreign or domestic insurance company, including application for eligibility of surplus lines insurers, captive insurance companies, protected cells of captive insurance companies, and incorporated protected cells of captive insurance companies, six hundred seventy-five dollars ($675);
    2. For issuing each new certificate of authority to a company, foreign or domestic, including letter of notification of eligibility of surplus lines insurers, upon application for admission or eligibility, as the case may be, four hundred forty dollars ($440);
    3. For annual review for determination of continuing eligibility of surplus lines insurers, two hundred seventy dollars ($270);
    4. For each company's annual statement, five hundred fifteen dollars ($515);
    5. For amendments to the company's certificate of authority, ninety dollars ($90.00);
    6. For each seal of office, with certificate, seven dollars ($7.00);
    7. For copies of any paper on file or deposit with the commissioner or the commissioner's office, fifty cents (50¢) per page;
    8. For receiving and reviewing each change of business plan or change in ownership for a captive insurance company, four hundred dollars ($400); and
    9. For receiving and reviewing each change of ownership for a protected cell of a captive insurance company or an incorporated protected cell of a captive insurance company, one hundred twenty-five dollars ($125).
  2. This section shall apply to all insurance companies, including state and county mutual fire insurance companies, title insurance companies, associations, fraternal benefit societies, captive insurance companies and surplus lines insurers maintaining eligibility status, notwithstanding any law or statute under which companies, associations and societies may have been organized.

Acts 1895, ch. 160, § 27; Shan., § 3311; Code 1932, § 6131; Acts 1967, ch. 24, § 2; 1971, ch. 272, § 1; 1972, ch. 481, § 1; 1975, ch. 68, § 21; 1979, ch. 298, § 1; T.C.A. (orig. ed.), § 56-401; Acts 1983, ch. 262, § 1; 1985, ch. 215, § 1; 2001, ch. 333, § 2; 2015, ch. 156, §§ 17, 18.

Compiler's Notes. Acts 2001, ch. 333, § 9 provided that the purpose of the act is to afford the insurance division of the department of commerce and insurance the ability to obtain sufficient staff and resources to adequately implement the provisions of title 56 and title 55, chapter 18, part 1 as related to the regulation of the business of insurance. Notwithstanding any law to the contrary, the increase in revenues generated by passage of the act shall be utilized by the department of commerce and insurance to defray the expenses of improvements to the department's insurance division incurred in the regulation of the business of insurance, including the expenses associated with any improvements to the division deemed necessary from time to time by the commissioner of the department of commerce and insurance. The improvements contemplated by the act shall be in addition to the base level funding appropriated to the insurance division in the fiscal year ending June 30, 2001. The commissioner of commerce and insurance is directed to identify the increase in revenues generated by the act and the expenditures associated with this increase, and annually inform the commissioner of the department of finance and administration of the amount of any unexpended revenues. The commissioner of finance and administration at the close of each fiscal year shall reserve any excess revenues raised by the act and unspent by the department of commerce and insurance, until expended for purposes consistent with this act. The funds shall not revert to the general fund on any June 30, and excess revenues shall not revert on any June 30, but shall remain available only for the benefit of the department of commerce and insurance's insurance division.

Cross-References. Foreign fraternal benefit society, fee for license or renewal, §§ 56-25-603, 56-25-605.

Mutual or assessment fire insurance companies, fees of commissioner, § 56-20-115.

Necessary expenses of department paid from fees prior to deposit into state treasury, § 56-1-209.

Reciprocity of treatment, § 56-4-218.

State mutual fire insurance agents, certificate of authority, fee, § 56-21-130.

State mutual fire insurance company, annual report, filing fee, § 56-21-111.

NOTES TO DECISIONS

1. Additional Payment for Fire Insurance.

Payments made pursuant to § 56-4-208 were not premium taxes, but fees, and could not be credited against excise taxes as premium taxes. Memphis Fire Ins. Co. v. Tidwell, 495 S.W.2d 198, 1973 Tenn. LEXIS 488 (Tenn. 1973).

56-4-102. Disposition of fees.

  1. The fees for the valuation of life insurance policies, which are provided in § 56-4-101, shall be collected for the use and benefit of the state and shall be held by the commissioner as expendable receipts, and the expense of operation of the department, including the salaries and traveling expenses of the actuaries employed pursuant to § 56-1-207, shall be paid out of the fees collected. At the end of each fiscal year, any remaining funds after the payment of the expense of operation of the department shall be remitted to the state treasurer and become a part of the general fund.
  2. The fees for receiving and reviewing each new application for admission and the annual fee for review of continuing eligibility of surplus lines insurers shall be collected for use and benefit of the state and shall be held by the commissioner as expendable receipts, and all salaries and traveling expenses of the personnel employed in the processing and review for admission or eligibility shall be paid out of such fees collected. At the end of each fiscal year, any remaining funds after payment of salaries and expenses of the personnel shall be remitted to the state treasurer and become a part of the general fund.

Acts 1943, ch. 97, § 3; mod. C. Supp. 1950, § 6459.42 (Williams, § 6459.45); impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-402; Acts 1983, ch. 262, § 2.

56-4-103. Fraternal insurance companies to pay per diem fee and expense of annual valuation of policies.

Any fraternal insurance societies or companies not subject to valuation fees as provided in § 56-4-101 shall pay a per diem fee and the expense of the actuary on each annual valuation in the same manner that insurance companies are required to pay fees and expenses to the examiner assigned by the commissioner, and the per diem fees and expenses shall not exceed the maximum compensation provided for the actuaries in § 56-1-207.

Acts 1943, ch. 97, § 4; C. Supp. 1950, § 6459.43 (Williams, § 6459.46); impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-403.

56-4-104. Receipt of illegal fees — Issuance of fraudulent certificate — Penalty.

If the commissioner exacts or receives, either directly or indirectly, any sum of money from any insurance company doing business in this state other than the fees allowed by law, or willfully issues a fraudulent or false certificate of soundness to the company; or, directly or indirectly, receives any money or other valuable thing for doing or not doing any official act as commissioner, other than the fees allowed by law, the commissioner commits a Class E felony.

Acts 1873, ch. 58, § 17; Shan., § 3345; Code 1932, § 6170; T.C.A. (orig. ed.), § 56-404; Acts 1989, ch. 591, §§ 1,6.

Compiler's Notes. The felony in this section has been designated as a Class E felony by authority of § 40-35-110, which provides that an offense designated a felony without specification as to category is a Class E felony. See also § 39-11-113.

Cross-References. Penalty for Class E felony, § 40-35-111.

56-4-105. Refund of erroneously paid amounts.

  1. With respect to any revenues or receipts collected by the department, any other law to the contrary notwithstanding, the amounts determined to have been erroneously paid may be refunded by the procedure developed by the commissioner of finance and administration and approved by the comptroller of the treasury.
  2. The procedure shall provide that no refund shall be made unless within three (3) years from December 31 of the year in which the erroneous payment was made, the refund is either requested by the claimant or made by the state on its own motion.

Acts 1984, ch. 633, § 1.

Cross-References. Refund of erroneously paid taxes, § 56-4-219.

56-4-106. Annual regulatory fee for credit life, accident, and health insurance.

With regard to each insurer qualified to transact only the business of reinsuring credit life and credit accident and credit health insurance, the commissioner shall collect a nonrefundable annual regulatory fee of three thousand dollars ($3,000). One half (½) of the regulatory fee shall be collected on April 1, which, notwithstanding § 56-1-501, shall also be the date on or before which the insurer's annual statement shall be filed, and the balance shall be collected on September 1 of each year, except that the initial regulatory fee collected shall be reduced pro rata to reflect the number of months during the year in which the certificate of authority has been in effect. The regulatory fees paid into the department under this section shall be held by the commissioner as expendable receipts for the purpose of administering chapter 7, part 9 of this title.

Acts 1988, ch. 667, § 3.

Part 2
Taxes

56-4-201. Companies subject to tax — “Insurance company” defined.

  1. Every domestic or foreign insurance company writing life, fire, marine, fidelity, surety, casualty, liability, or other forms of insurance shall pay directly to the commissioner the taxes as provided for in this part.
  2. As used in this part, “insurance company” means any insurance, fidelity or surety company, including any corporation, company, partnership, association, society, order, fraternal or otherwise, individual or aggregation of individuals engaging in, or proposing or attempting to engage in, any kind of insurance or surety business, including the exchanging of reciprocal or interinsurance contracts between individuals, partnerships and corporations.

Acts 1945, ch. 3, § 1; C. Supp. 1950, § 1248.41 (Williams, § 1248.169); impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed), § 56-405.

Cross-References. Converted stock or mutual life insurance company, liability for tax, § 56-25-306.

Law Reviews.

Constitutional Law — 1954 Tennessee Survey, 7 Vand. L. Rev. 763.

NOTES TO DECISIONS

1. Liability of Reinsurer.

Under former law, a foreign insurance company, not authorized to do business in this state, could reinsure risks of a complying company, without making the reinsurer a broker subject to tax on brokers, or to premium tax. Volunteer State Life Ins. Co. v. Caldwell, 157 Tenn. 241, 7 S.W.2d 803, 1927 Tenn. LEXIS 69 (1928).

56-4-202. Associations exempt.

Sections 56-4-201—56-4-218 do not apply to fraternal benefit associations and societies as defined in chapter 25 of this title, nor to those exempt from the provisions provided in § 56-25-704.

Acts 1945, ch. 3, § 7; C. Supp. 1950, § 1248.47 (Williams, § 1248.175); T.C.A. (orig. ed.), § 56-406; Acts 1990, ch. 703, § 2.

Compiler's Notes. Section 56-25-1704 referenced in this section was renumbered as 56-25-704 by the authority of the code commission in 2016.

56-4-203. State purposes only.

The tax imposed by this part shall be for state purposes only, and no county or city shall be authorized to levy or collect a like tax.

Acts 1953, ch. 49, § 1 (Williams, § 1248.169); T.C.A. (orig. ed.), § 56-407.

56-4-204. “Gross premiums” defined.

As used in this part, “gross premiums” means maximum gross premiums as provided in the policy contracts, new and renewal, including policy or membership fees, whether paid in part or in whole by cash, automatic premium loans, dividends applied in any manner whatsoever, and without deduction or exclusion of dividends in any manner; but excluding premiums returned on cancelled policies, or on account of reduction in rates, or reductions in the amount insured or experience rating refunds on life insurance policies and disability insurance policies.

Acts 1945, ch. 3, § 1; C. Supp. 1950, § 1248.41 (Williams, § 1248.169); Acts 1977, ch. 220, § 1; T.C.A. (orig. ed.), § 56-412.

Cross-References. Credit life insurance, retrospective rate credits, computation of tax on gross premiums, § 56-7-906.

NOTES TO DECISIONS

1. Construction.

The purpose of this section is to define “gross premiums” in order to determine the amount upon which the tax is levied. Williams v. Massachusetts Mut. Life Ins. Co., 221 Tenn. 508, 427 S.W.2d 845, 1968 Tenn. LEXIS 480 (1968).

“Gross premium receipts,” as the words were used in the revenue statutes, were construed not to include dividends of policyholders credited on their premiums in accordance with the construction of the insurance commissioner followed for 35 years, though the commissioner in 1932 gave the words a construction to the contrary. New England Mut. Life Ins. Co. v. Reece, 169 Tenn. 84, 83 S.W.2d 238, 1935 Tenn. LEXIS 19 (1935) (decision under prior law).

56-4-205. Tax on gross premiums — Due date for payment of tax — Minimum stipulated.

      1. All insurance companies writing the forms of insurance enumerated in § 56-4-201, except life insurance companies and fraternal benefit associations, orders or societies, and except insurance companies and self-insurers covered by §§ 56-4-206 and 56-4-207, shall pay two and one half percent (2.5%) on gross premiums paid by or for policyholders residing in this state or on property located in this state. Domestic and foreign life insurance companies shall pay a tax equal to one and three fourths percent (1.75%) of gross premiums received from citizens of and residents of this state.
      2. Any governmental agency operating as a self-insurer and contracts either for a percentage or a flat fee for the administration of its self-insurance plan with an insurance company shall not be obligated to pay the premium tax.
    1. The taxes shall be reported and payable in an electronic format approved by the commissioner on a quarterly basis with payments being due on or before June 1, August 20, December 1, and March 1. The taxes shall be reported and payable on electronic return forms approved by the commissioner. Installments of the annual premium taxes due and payable for each quarter as described in this section shall be based on the estimated amount of gross premiums received during that prior calendar quarter. A final payment of tax due for the preceding calendar year shall be made at the time each insurance company files its March 1 return. The final payment shall be measured by the gross premium, as defined in § 56-4-204, received by the respective companies during the calendar year immediately preceding. Any insurance company that fails to report and pay any installment of tax, promptly and correctly as provided by this section, or that estimates any installment of tax to be less than eighty percent (80%) of the amount finally shown to be due in any quarter, shall be subject to interest and penalty as provided in § 56-4-216 for any underpayment of taxes due and payable for that quarter. Any insurance company paying, for each installment required in this section, twenty-five percent (25%) of the amount of the annual premium taxes reported on its annual return for the preceding year shall not be subject to any penalty or interest for the underpayment.
    2. The minimum amount of tax payable by any company under this chapter for the privilege of transacting business for any calendar year shall be one hundred fifty dollars ($150).
  1. For the purposes of this section only, “domestic life insurance company” means:
    1. A life insurance company that maintains in Tennessee:
      1. The offices of its president and secretary;
      2. Its principal administrative and operating offices; and
      3. Its books and records with regard to insurance transactions; or
    2. An insurance company authorized only to transact the business of reinsuring credit life and credit accident and health insurance, if the insurance company otherwise meets the requirements of subdivision (b)(1), if and to the extent that the tax imposed in this part on gross premium receipts on credit life and credit accident and health insurance is allocated pursuant to the reinsurance agreement from the ceding insurer to the reinsuring insurer, and the agreements shall be effective to enable the reinsuring company to use the premium tax liability so allocated as a credit under § 56-4-217; provided, that the ceding company may not use as a credit under § 56-4-217 any tax liability allocated by the ceding company to the reinsuring company; and provided, further, that no allocation of premium tax liability as described in this part shall relieve the ceding company from responsibility for payment of the full premium tax and for the filing of sworn returns in accordance with this section.
  2. From revenues generated by the premium tax on fire insurance levied by this section, a sum sufficient shall be earmarked for the payment of the pay supplement of six hundred dollars ($600) to eligible firefighters by the commission on firefighting personnel standards and education pursuant to title 4, chapter 24.

Acts 1945, ch. 3, § 1; mod. C. Supp. 1950, § 1248.41 (Williams, § 1248.169); Acts 1957, ch. 185, § 2; 1967, ch. 174, § 1; impl. am. Acts 1971, ch. 137, § 2; Acts 1972, ch. 728, § 1; 1976, ch. 452, § 1; T.C.A. (orig. ed.), § 56-408; Acts 1984 (1st E.S.), ch. 4, § 1; 1986, ch. 587, § 1; 1988, ch. 667, § 1; 1988, ch. 1003, § 5; 1991, ch. 291, § 1; 1994, ch. 770, § 1; 1994, ch. 1008, § 1; 1995, ch. 304, § 1; 2007, ch. 567, § 4; 2015, ch. 155, § 4.

Code Commission Notes.

Former provisions in subdivisions (a)(1) and (2), concerning the percentage of tax on gross premiums foreign life insurance companies were to pay for certain calendar years and when those taxes were payable, were deleted as obsolete by the code commission in 2008.

Cross-References. Business tax, title 67, ch. 4, part 7.

Credit life insurance, retrospective rate credits, computation of tax on gross premiums, § 56-7-906.

Credit on premium tax, § 56-4-211.

Privilege and excise tax law, title 67, ch. 4.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 6.

56-4-206. Tax on workers' compensation insurers.

Every insurance company writing workers' compensation insurance under the Workers' Compensation Law, compiled in title 50, chapter 6, shall be subject to and pay a tax of four percent (4%) on gross premiums collected for workers' compensation insurance, plus a surcharge of four tenths of one percent (0.4%) on gross premiums, the surcharge to be earmarked for the administration of the Tennessee Occupational Safety and Health Act, compiled in title 50, chapter 3. This tax shall be paid at the same time and in the same manner as the tax levied upon insurance companies by § 56-4-205; provided, that the surcharge of four tenths of one percent (0.4%) on the tax on workers' compensation insurance premiums levied by this section does not apply to any employer who employs ten (10) or fewer employees, unless the employer is in the business of construction or manufacturing.

Acts 1945, ch. 3, § 2; C. Supp. 1950, § 1248.42 (Williams, § 1248.170); T.C.A. (orig. ed.), § 56-409; impl. am. Acts 1980, ch. 534, § 1; Acts 1981, ch. 396, §§ 1, 4.

NOTES TO DECISIONS

1. Premium Tax.

Although a tax credit was allowed under T.C.A. § 56-4-217(a) for premium taxes paid by workers'  compensation self-insurers under T.C.A. § 56-4-206, the tax credit for franchise and excise taxes paid under former T.C.A. § 56-4-217(b) did not apply to self insurers as well. Former T.C.A. § 56-4-217(b) was added to the statute at the same time and in conjunction with 56-4-217(c), which restricted its application to “insurance companies” as defined in T.C.A. § 56-1-102(2), therefore the credit described in former T.C.A. § 56-4-217(b) was also restricted to insurance companies and did not apply to the taxpayer as a workers'  compensation self-insurer. Saturn Corp. v. Johnson, 197 S.W.3d 273, 2006 Tenn. App. LEXIS 252 (Tenn. Ct. App. 2006).

56-4-207. Tax on self-insurers under compensation law.

  1. If any employer covered by the Workers' Compensation Law, compiled in title 50, chapter 6, carries its own insurance as provided by that chapter, the employer shall pay to the commissioner four percent (4%) on the premium that the employer would be required to pay if the employer carried the full coverage insurance called for with licensed insurance companies; provided, that the tax so paid by any employer shall in no instance be less than five dollars ($5.00), and a surcharge of four tenths of one percent (0.4%) on the premium the employer would have been required to pay, the surcharge to be earmarked for the administration of the Tennessee Occupational Safety and Health Act, compiled in title 50, chapter 3. The tax shall be paid by the self-insurers to the commissioner on or before June 30 of each year. Any company or corporation electing to operate as a self-insurer and having been duly qualified as such subsequent to June 30 of any year shall pay the tax based on the estimated payroll for the balance of the year when the permit is issued; provided, that the surcharge of four tenths of one percent (0.4%) on the tax on workers' compensation insurance premiums levied by this section shall not apply to any employer who employs ten (10) or fewer employees, unless the employer is in the business of construction or manufacturing.
  2. This section shall not apply to county or municipal governments.

Acts 1945, ch. 3, § 2; C. Supp. 1950, § 1248.42 (Williams, § 1248.170); impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed.), § 56-410; impl. am. Acts 1980, ch. 534, § 1; Acts 1981, ch. 396, §§ 2, 4; 1984, ch. 962, § 1; 1985, ch. 354, § 1.

NOTES TO DECISIONS

1. Fee.

Surcharge imposed on self-insured employers by T.C.A. § 56-4-207(a) on workers'  compensation premiums was earmarked for the administration of the Tennessee Occupational Safety and Health Act and was a fee rather than a tax and could not be applied as a tax credit, T.C.A. § 56-4-217(a). Saturn Corp. v. Johnson, 236 S.W.3d 156, 2007 Tenn. App. LEXIS 66 (Tenn. Ct. App. Jan. 31, 2007), appeal denied, — S.W.3d —, 2007 Tenn. LEXIS 563 (Tenn. June 18, 2007).

56-4-208. Additional payment for fire insurance.

  1. In addition to the premium taxes levied by § 56-4-205, all companies writing fire insurance and lines of business having fire coverages as a part of the risk rate shall pay three fourths of one percent (0.75%) on that portion of the premium applicable to the fire risk for the purpose of executing the fire marshal law.
  2. For the purpose of subsection (a), the following portions of the amounts required to be reported by line of business in the annual statement required by § 56-1-501 shall be considered premiums for insurance covering the peril of fire:
    1. Fire lines, one hundred percent (100%);
    2. Farmowners and homeowners multiple peril, fifty-five percent (55%);
    3. Commercial multiple peril, fifty percent (50%);
    4. Inland marine, twenty percent (20%);
    5. Automobile physical damage, eight percent (8%); and
    6. Aircraft physical damage, eight percent (8%).
  3. This tax shall be paid at the same time and in the same manner as the tax levied upon insurance companies by § 56-4-205.

Acts 1945, ch. 3, § 3; mod. C. Supp. 1950, § 1248.43 (Williams, § 1248.171); Acts 1976, ch. 742, § 1; T.C.A. (orig. ed.), § 56-411.

Cross-References. Fire prevention and investigation, title 68, ch. 102.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 6.

NOTES TO DECISIONS

1. In General.

The payments made pursuant to this section were not premium taxes, but fees, and could not be credited against excise taxes as premium taxes. Memphis Fire Ins. Co. v. Tidwell, 495 S.W.2d 198, 1973 Tenn. LEXIS 488 (Tenn. 1973).

2. Period of Tax Liability.

The Tennessee statutes authorize a tax on the annual premiums received during each six months to be paid during the life of the policies upon which the premiums are received. Insurance Co. of North America v. Long, 215 Tenn. 642, 389 S.W.2d 245, 1965 Tenn. LEXIS 671 (1965).

56-4-209. [Repealed.]

Compiler's Notes. Former § 56-4-209 (Acts 1945, ch. 3, § 5, C. Supp. 1950, § 1248.45 (Williams, § 1248.173); Acts 1955, ch. 308, § 1; 1976, ch. 521, § 1; T.C.A. (orig. ed.), § 56-413; Acts 1985, ch. 415, § 1), concerning tax on annuity receipts, was repealed by Acts 1985, ch. 415, § 2. For current law on tax on annuity receipts, see § 56-4-220.

56-4-210. “Tennessee securities” defined — Reduction in tax for investments in state.

  1. As used in this chapter, “Tennessee securities” means real estate owned by an insurance company described in subdivision (b)(1) in this state; bonds of the state of Tennessee; bonds or interest- bearing warrants of any county, city, town, school district, municipality or subdivision thereof which is now or may hereafter be constituted and authorized to issue bonds or warrants under the constitution and laws of this state; notes or bonds secured by mortgage or trust deed on property in this state, including those insured by the federal housing administration, the farm home administration, the federal government or any branch agency, department or bureau thereof; the cash deposits in regular established national or state banks or trust companies in this state, and other short-term investments, on the basis of average daily balances throughout the preceding calendar year; and any other property or security in Tennessee or issued by Tennessee corporations in which by law such insurance company may invest its funds.
    1. Any insurance company writing the forms of insurance enumerated in § 56-4-201, except life insurance companies, fraternal benefit associations, orders or societies, health and accident insurance companies, life and accident insurance companies and nonprofit group hospital service plans, meeting the conditions set forth in this section, shall be entitled to a reduction of or credit upon its gross premiums tax as provided under this part. Any company desiring to qualify for the credit or reduction shall report to the commissioner, on or before March 1 of each year, the amount that the company had invested on March 31, June 30, September 30, and December 31 of the year preceding in Tennessee securities, and the amount that it had invested on those dates in similar securities in the other state in which it had its highest percentage of admitted assets invested.
    2. If the report of the insurance company shows that the company, as of March 31, June 30, September 30, and December 31 of the year preceding had invested in Tennessee securities, an amount that was not less than seventy percent (70%) nor more than eighty percent (80%) of the amount it had invested in similar securities in the other state in which it then had the highest percentage of its admitted assets invested, the insurance company's tax on its gross premiums shall be reduced by an amount equal to twenty-five percent (25%) of the tax.
    3. If the report shows the insurance company had invested in the Tennessee securities on the date specified in subdivision (a)(1), an amount that was in excess of eighty percent (80%) but not more than ninety percent (90%) of the amount it had invested in similar securities in the other state in which it then had the highest percentage of its admitted assets invested, the company's tax on its gross premiums shall be reduced by an amount equal to fifty percent (50%) of the tax.
    4. If the report shows the insurance company had invested in the Tennessee securities on the date specified in subdivision (a)(1), an amount that was in excess of ninety percent (90%) of the amount it had invested in similar securities in the other state in which it then had the highest percentage of its admitted assets invested, the company's tax on its gross premiums shall be reduced by an amount equal to seventy-five percent (75%) of the tax.
    5. Subdivisions (b)(1)-(4) shall only be applicable to a company having investments, as shown by the report, in Tennessee securities equal to at least twenty-five percent (25%) of its total admitted assets, extended at each quarterly statement value.
    1. For the purposes of this section, the securities of such insurance company invested in another state in which it then had the highest percentage of its admitted assets invested, as shown in the report, includes:
      1. Bonds of the other state;
      2. Bonds or interest bearing warrants of any county, city, town, school district, municipality or subdivision of any county, city, town, school district or municipality, valued at amortized or market value; notes or bonds secured by mortgage or trust deed on property in the other state, including those insured by the federal housing administration, the farm home administration, the federal government or any branch agency, department or bureau of the federal government, valued at unpaid principal;
      3. The cash deposits in regular established national or state banks or trust companies, and other short-term investments, in such other state on the basis of average daily balances throughout the preceding calendar year; and
      4. Any other property or security in such other state or issued by corporations domiciled in such other state in which by law such insurance company may invest its funds.
    2. Values of the property or security listed in subdivision (c)(1) are to be valued at market value for purposes of determining the percentage of investment between investments in this state and investments in the other state with the highest percentage of admitted assets invested.
  2. The reduction or credit provided by this section shall not be applicable with respect to the gross premium tax on premiums paid under policies of insurance directly or indirectly reinsured with any affiliate or affiliates of the company that is the direct writer of the policies, unless the affiliates that actually bear the risk of loss under the reinsurance arrangements would, if considered on a consolidated basis, qualify for the reduction or credit were the affiliates the direct writer.
    1. If a workers' compensation self-insurance pool established in § 50-6-405(c) invests in excess of eighty percent (80%) of its assets, as determined by generally accepted accounting principles, as of December 31 of the preceding year, in Tennessee securities, the workers' compensation self-insurance pools' taxes on its gross premiums shall be reduced by an amount equal to fifty percent (50%) for the current year.
    2. A workers' compensation self-insurance pool desiring to qualify for the credit or reduction shall report to the commissioner on or before March 1 of each year, the amount the pool had invested as of December 31 of the year preceding with cash and short-term investments based on average daily balances.
  3. As used in this section:
    1. “Affiliate” means any insurance company that controls, is controlled by, or is under common control with the insurer writing the policies; and
    2. “Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a company. “Control” is deemed to exist if any company, directly or indirectly, owns, controls, holds with power to vote, or holds proxies representing more than eighty percent (80%) of the voting securities of any other company.

Acts 1953, ch. 49, § 1 (Williams, § 1248.169); impl. am. Acts 1971, ch. 137, § 2; 1974, ch. 568, §§ 1, 2; T.C.A. (orig. ed.), § 56-414; Acts 1980, ch. 507, § 1; 1998, ch. 1015, § 1; 2015, ch. 155, §§ 5-10.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 6.

NOTES TO DECISIONS

1. Nature and Effect.

This section does not specify a lower tax rate or provide tax exemption but merely offers to insurance companies a credit against their tax liability for investment in Tennessee securities. Williams v. Thomas Jefferson Ins. Co., 215 Tenn. 356, 385 S.W.2d 908, 1965 Tenn. LEXIS 623 (1965).

2. Credit Against Reciprocity Tax.

An insurance company which is subject to the retaliatory or reciprocity tax provided by § 56-4-218 is entitled to the credits provided by this section. Williams v. Thomas Jefferson Ins. Co., 215 Tenn. 356, 385 S.W.2d 908, 1965 Tenn. LEXIS 623 (1965).

This section and § 56-4-218 are to be construed together, in harmony with each other, so as not to make them repugnant to each other. Williams v. Thomas Jefferson Ins. Co., 215 Tenn. 356, 385 S.W.2d 908, 1965 Tenn. LEXIS 623 (1965).

56-4-211. Credit for valuation of policies fees.

The charge for valuation of life policies as contained in § 56-4-101 shall be allowed as a credit against the premium taxes collected under this part whenever the charges are paid to the commissioner as provided by that section; provided, that no credit shall be allowed for any valuation fees paid prior to January 1, 1945.

Acts 1945, ch. 3, § 4; C. Supp. 1950, § 1248.44 (Williams, § 1248.172); impl. am. Acts 1971, ch. 137, § 2; T.C.A. (orig. ed), § 56-415.

Compiler's Notes. The charge for valuation of life policies, referred to in this section, is not contained in § 56-4-101.

56-4-212. Period covered by payments.

The taxes imposed under this part shall be for the privilege of transacting business for each calendar quarter of each year but shall be measured by the gross premiums and consideration received by the respective companies during the quarter immediately preceding.

Acts 1945, ch. 3, § 8; C. Supp. 1950, § 1248.48 (Williams, § 1248.176); modified; T.C.A. (orig. ed), § 56-416; Acts 2015, ch. 155, § 11.

Cross-References. See notes under heading “Merged Corporations,” § 56-4-215, Notes to Decisions.

NOTES TO DECISIONS

1. Period of Tax Liability.

The Tennessee statutes authorize a tax on the annual premiums received during each six months to be paid during the life of the policies upon which the premiums are received. Insurance Co. of North America v. Long, 215 Tenn. 642, 389 S.W.2d 245, 1965 Tenn. LEXIS 671 (1965).

2. Credit Restricted to Insurance Companies.

Although a tax credit was allowed under T.C.A. § 56-4-217(a) for premium taxes paid by workers' compensation self-insurers under T.C.A. § 56-4-206, the tax credit for franchise and excise taxes paid under former T.C.A. § 56-4-217(b) did not apply to self insurers as well. Former T.C.A. § 56-4-217(b) was added to the statute at the same time and in conjunction with 56-4-217(c), which restricted its application to “insurance companies” as defined in T.C.A. § 56-1-102(2), therefore the credit described in former T.C.A. § 56-4-217(b) was also restricted to insurance companies and did not apply to the taxpayer as a workers' compensation self-insurer. Saturn Corp. v. Johnson, 197 S.W.3d 273, 2006 Tenn. App. LEXIS 252 (Tenn. Ct. App. 2006).

56-4-213. Exemption from other taxes.

  1. The payment of the taxes provided in this part shall be in lieu of all other taxes, except as provided in § 56-4-217, except ad valorem taxes upon real and personal property, and except fees required by law of the companies.
  2. Nothing in this section shall be construed to provide an exemption from the sales and use tax imposed by title 67, chapter 6.

Acts 1945, ch. 3, § 6; mod. C. Supp. 1950, § 1248.46 (Williams, § 1248.174); T.C.A. (orig. ed.), § 56-417; Acts 2005, ch. 499, § 22.

56-4-214. Liability after ceasing to transact new business.

Any insurance company ceasing for any cause to transact new business in this state shall continue to pay the taxes provided in this part in accordance with § 56-4-215.

Acts 1945, ch. 3, § 1; C. Supp. 1950, § 1248.41 (Williams, § 1248.169); T.C.A. (orig. ed.), § 56-418.

NOTES TO DECISIONS

1. Period of Tax Liability.

The Tennessee statutes authorize a tax on the annual premiums received during each six months to be paid during the life of the policies upon which the premiums are received. Insurance Co. of North America v. Long, 215 Tenn. 642, 389 S.W.2d 245, 1965 Tenn. LEXIS 671 (1965).

56-4-215. Foreign companies — Tax upon business in force upon ceasing to transact new business — Failure to pay tax, penalty — Condition to obtain or renew license.

  1. A foreign insurance company that takes out or renews a license to transact business in this state shall, upon the expiration of their license for any cause, or upon their ceasing to transact new business in this state, continue to pay the same tax upon its business remaining in force in this state, and in like manner and at like times as other duly licensed insurance companies of the same class are required to pay by any current law in force at that time.
  2. Such foreign companies that fail to pay the taxes required of them by this section, within sixty (60) days after the taxes are due, shall be liable for a penalty of fifty percent (50%) in addition to the taxes, recoverable at law or in equity.
  3. Compliance with this section shall be a condition upon which any foreign insurance company shall be authorized to obtain or renew a license, and the acceptance of these terms or conditions shall be conclusively presumed from the taking out or the renewing of the license.

Acts 1903, ch. 442, §§ 2-4; Shan., §§ 3302a2-3302a4; Code 1932, §§ 6120-6122; T.C.A. (orig. ed.), § 56-419.

Law Reviews.

Taxation — Foreign Corporations After Withdrawal from State, 16 Tenn. L. Rev. 1005.

NOTES TO DECISIONS

1. Tax on Withdrawal.

Foreign life insurance company which had withdrawn from the state was subject to privilege tax based on premiums of unmatured policies issued while in the state and the imposition of such tax was not a violation of due process. State v. Continental Assurance Co., 176 Tenn. 1, 137 S.W.2d 277, 1939 Tenn. LEXIS 94 (1940), rehearing denied, 176 Tenn. 1, 138 S.W.2d 447 (1940), appeal dismissed, Continental Assurance Co. v. Tennessee, 311 U.S. 5, 61 S. Ct. 1, 85 L. Ed. 5, 1940 U.S. LEXIS 211 (Oct. 21, 1940), appeal dismissed, Continental Assurance Co. v. Tennessee, 311 U.S. 5, 61 S. Ct. 1, 85 L. Ed. 5, 1940 U.S. LEXIS 211 (Oct. 21, 1940).

2. Merged Corporations.

Foreign insurance company which merged with subsidiary and assumed debts and obligations of subsidiary including taxes was liable for privilege tax on gross premiums received from policy holders of subsidiary company after the merger became effective as this section not only applies to companies which have withdrawn from the state while continuing to do business elsewhere but also to a liquidated corporation whose assets and liabilities are assumed by another. Insurance Co. of North America v. Long, 215 Tenn. 642, 389 S.W.2d 245, 1965 Tenn. LEXIS 671 (1965).

Collateral References.

Discrimination by state against foreign insurance corporations in imposition of taxes and license fees. 49 A.L.R. 726, 77 A.L.R. 1490.

Taxes, permissible classification of foreign companies which will justify discrimination among them. 83 A.L.R. 464.

56-4-216. Delinquency.

    1. Any foreign or domestic company failing and neglecting to make returns and payments promptly and correctly as provided by § 56-4-205 shall forfeit and pay to the state, in addition to the amount of these taxes, an amount equal to five percent (5%) for the first month or fractional part of the first month of delinquency; provided, that should the period of delinquency exceed one (1) month, the rate of penalty will be an additional five percent (5%) for the second month or fractional part of the second month and penalty thereafter at the rate of one half of one percent (0.5%) per month of the amount of tax due, the maximum penalty not to exceed ten thousand dollars ($10,000) for any company not more than three (3) days delinquent. All delinquencies shall bear interest at the rate of ten percent (10%) per annum from the date the amount was due until paid. The penalty and interest shall apply to any part of the tax unpaid by the due date and no penalty or interest may be waived.
    2. The commissioner has the discretion, for good cause shown, upon application made in advance of the delinquency date, to grant an extension of time not to exceed sixty (60) days, to the company to file the premium tax returns and pay the tax imposed in this part, without penalty attached, but the tax shall bear interest as provided in subdivision (a)(1) from the date the amount was due.
    3. For good cause shown, the commissioner may grant an exemption from the electronic reporting requirements of § 56-4-205 and permit timely filings and payments by nonelectronic means upon application made in advance of the delinquency date.
  1. Any company failing to pay the tax due plus penalty and interest for sixty (60) days beyond the due date shall thereafter be debarred from transacting any business of insurance in the state until these taxes and penalties are fully paid, and the commissioner shall revoke the certificate of authority granted to the agent or agents for that company to transact business in the state.
  2. Notwithstanding any other statutes of this state, no grace period for the filing of returns and payments shall be allowed.
  3. A premium tax return and payment made to the department shall not be considered as paid on or before the due date unless the premium tax return and payment are received in the office of the commissioner, in the electronic manner approved by the commissioner, on or before the due date.
  4. If an exemption is granted pursuant to subdivision (a)(3), a premium tax return and payment made to the department shall not be considered as paid on or before the due date unless:
    1. The premium tax return and payment are received in the office of the commissioner on or before the due date;
      1. The premium tax return and payment bear a post office cancellation mark stamped by the United States postal service on or before the due date, or are mailed by certified or registered mail, or have a certificate of mailing on or before the due date. A premium tax return and payment received by the department bearing a metered mail stamp and no post office cancellation mark stamped by the United States postal service shall be deemed filed and received on the date the premium tax return arrives at the department;
      2. In the event a premium tax return and payment are mailed, but not received by the department, or received, and the cancellation mark is illegible or omitted, the return and payment shall be deemed filed and received, on the date they were mailed, if the sender establishes that the premium tax return and payment were deposited in the United States mail. In order to establish proof of mailing under these circumstances, a record authenticated by the United States postal service that the original mailing was sent registered mail, certified mail, or by certificate of mailing, shall be the only proof accepted by the department; or
    2. The premium tax and payment are received in a manner established by the commissioner by rules. The rules may provide for the filing of premium tax returns and payments to be made through electronic means. The commissioner is also authorized to promulgate rules that provide for a convenience fee to cover the cost of accepting electronic premium tax returns and payments. Any fee set by rule under the authority of this subdivision (e)(3) may be assessed in addition to any applicable penalty and interest. In no event shall the convenience fee exceed the actual costs incurred by the department in accepting electronic premium tax returns and payments.

Acts 1975, ch. 114, § 1; 1977, ch. 45, § 1; T.C.A., § 56-420; Acts 1984, ch. 635, § 1; 1991, ch. 291, §§ 2-6; 2006, ch. 1018, § 2; 2015, ch. 155, §§ 12, 13.

Compiler's Notes. Acts 2006, ch. 1018, § 6 provided that the commissioner is authorized to promulgate rules and regulations to effectuate the purposes of the act. The rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act, complied in title 4, chapter 5.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Law Reviews.

Taxation — Foreign Corporations After Withdrawal from State, 16 Tenn. L. Rev. 1005.

NOTES TO DECISIONS

1. Construction.

Subdivisions (c)(2) and (c)(3) are unambiguous and, therefore, must be interpreted according to their plain meanings. Safeco Ins. Co. v. State, 840 S.W.2d 355, 1992 Tenn. LEXIS 555 (Tenn. 1992).

2. Applicability.

Subdivision (c)(3), by its specific terms, was not applicable where the returns and payments were received bearing a metered mail stamp and no post office cancellation mark stamped by the United States post office, precisely the circumstances that brought the case within the terms of subdivision (c)(2), not subdivision (c)(3). Safeco Ins. Co. v. State, 840 S.W.2d 355, 1992 Tenn. LEXIS 555 (Tenn. 1992).

3. Liability of Reinsurer.

A foreign insurance company, not authorized to do business in this state, may reinsure risks of a complying company, without making the reinsurer a broker subject to tax on brokers, or to premium tax imposed above. Volunteer State Life Ins. Co. v. Caldwell, 157 Tenn. 241, 7 S.W.2d 803, 1927 Tenn. LEXIS 69 (1928).

4. Time for Paying Tax.

The reference in this section to § 56-4-205 refers primarily to the time for paying the tax. Republic Ins. Co. v. Oakley, 637 S.W.2d 448, 1982 Tenn. LEXIS 336 (Tenn. 1982).

56-4-217. Credit against franchise and excise taxes.

  1. The amount of the premium taxes collected under §§ 56-4-201 — 56-4-214 shall be a single credit against the sum total of the taxes imposed by the Franchise Tax Law, compiled in title 67, chapter 4, part 21, and by the Excise Tax Law, compiled in title 67, chapter 4, part 20.
  2. For tax years beginning on or after December 15, 2002, the excise tax imposed by title 67, chapter 4, part 20, and the franchise tax imposed by title 67, chapter 4, part 21, shall no longer be applicable to insurance companies, as defined in § 56-1-102.

Acts 1945, ch. 3, § 4; 1947, ch. 201, § 1; mod. C. Supp. 1950, § 1248.44 (Williams, § 1248.172); T.C.A. (orig. ed.), § 56-421; Acts 1997, ch. 508, § 1; 2008, ch. 1106, § 54.

Cross-References. Credit against franchise tax, § 67-4-2109.

Credit on excise tax, § 67-4-2009.

NOTES TO DECISIONS

1. Credits Excluded.

The payments made pursuant to § 56-4-208, commonly called the fire marshal's tax, were not premium taxes, but fees, and could not be credited against excise taxes as premium taxes. Memphis Fire Ins. Co. v. Tidwell, 495 S.W.2d 198, 1973 Tenn. LEXIS 488 (Tenn. 1973).

Surcharge imposed on self-insured employers by T.C.A. § 56-4-207(a) on workers'  compensation premiums was earmarked for the administration of the Tennessee Occupational Safety and Health Act and was a fee rather than a tax and could not be applied as a tax credit, T.C.A. § 56-4-217(a). Saturn Corp. v. Johnson, 236 S.W.3d 156, 2007 Tenn. App. LEXIS 66 (Tenn. Ct. App. Jan. 31, 2007), appeal denied, — S.W.3d —, 2007 Tenn. LEXIS 563 (Tenn. June 18, 2007).

2. Credit Restricted to Insurance Companies.

Although a tax credit was allowed under T.C.A. § 56-4-217(a) for premium taxes paid by workers'  compensation self-insurers under T.C.A. § 56-4-206, the tax credit for franchise and excise taxes paid under former T.C.A. § 56-4-217(b) did not apply to self insurers as well. Former T.C.A. § 56-4-217(b) was added to the statute at the same time and in conjunction with 56-4-217(c), which restricted its application to “insurance companies” as defined in T.C.A. § 56-1-102(2), therefore the credit described in former T.C.A. § 56-4-217(b) was also restricted to insurance companies and did not apply to the taxpayer as a workers' compensation self-insurer. Saturn Corp. v. Johnson, 197 S.W.3d 273, 2006 Tenn. App. LEXIS 252 (Tenn. Ct. App. 2006).

56-4-218. Reciprocity of treatment.

  1. When, by the laws of any other state or foreign country, any premium or income or other taxes, or any fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions are imposed upon Tennessee insurance companies doing business in the other state or foreign country, or upon their agents in the other state or foreign country, that are in excess of the taxes, fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions imposed upon the insurance companies of the other state or foreign country doing business in this state, or that might seek to do business in this state, or upon their agents in the state, so long as the laws continue in force, the same premium or income or other taxes, or fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions and restrictions of whatever kind shall be imposed upon the companies of the other state or foreign country doing business in this state, or upon their agents in this state. The commissioner shall compute the burden of premium taxes on the basis of the basic premium tax rate levied by the laws of the other state or foreign country for the kind of business transacted without reduction in the basic premium rate for investments that a like Tennessee company may qualify for or as a result of investments the company may have made in Tennessee securities. Any tax, license or other obligation imposed by any city, county or other political subdivision of a state or foreign country on the Tennessee insurance companies shall be deemed to be imposed by the state or foreign country within the meaning of this section, and the commissioner, for the purpose of this section, shall compute the burden of the tax, license or other obligation on an aggregate statewide or foreign countrywide basis as an addition to the rate of tax and to the charges that are or would be payable by similar Tennessee insurance companies in the state or foreign country. This section shall be applied on a retaliatory basis without consideration of any reciprocity an insurance company domiciled in another state or foreign country may claim due to lower premium or income or other taxes, or lower fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions that are imposed upon the insurance companies of other states or foreign countries doing business in this state. Each foreign insurance company doing business in this state shall furnish, over the signature and oath of its responsible officers, the necessary information for the computation of the taxes upon forms prescribed by the commissioner. The commissioner may issue any and all necessary regulations to carry out the purposes of this section. This section shall not apply to ad valorem taxes on real or personal property, to personal income taxes, or to any examination fees provided in § 56-1-413.
  2. The time, period and manner of payment of the retaliatory tax shall be the same in all cases as that of the gross premium tax provided for in § 56-4-205, and no interest charges or credits shall be made or allowed for use or loss of use of funds due to any conflict of the time, period or manner of payment in this state and the time, period or manner in a foreign state or country.
  3. Notwithstanding any other provision under this title, claims challenging liability imposed by this section must be brought in the chancery court of Davidson County pursuant to the procedures set out in title 67, chapter 1, part 9.

Acts 1945, ch. 3, § 9; C. Supp. 1950, § 1248.49 (Williams, § 1248.177); Acts 1953, ch. 49, § 2; 1957, ch. 185, § 1; 1965, ch. 232, § 1; 1979, ch. 314, § 1; T.C.A. (orig. ed.), § 56-423; Acts 1985, ch. 354, § 2; 2015, ch. 155, § 14; 2017, ch. 423, § 1.

Amendments. The 2017 amendment added (c).

Effective Dates. Acts 2017, ch. 423, § 3. May 18, 2017.

Textbooks. Tennessee Jurisprudence, 15 Tenn. Juris., Insurance, § 6.

NOTES TO DECISIONS

1. Constitutionality.

Tennessee's retaliatory insurance premium tax statute is constitutional. Old Republic Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 457 (Tenn. Ct. App. July 31, 2014), rev'd, Chartis Cas. Co. v. State, 475 S.W.3d 240, 2015 Tenn. LEXIS 813 (Tenn. Oct. 2, 2015).

Tennessee retaliatory tax was constitutional under United States Constitution. Great Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 464 (Tenn. Ct. App. July 31, 2014), appeal denied, Great Am. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 35 (Tenn. Jan. 16, 2015).

2. Purpose of Section.

The legislative purpose of the retaliatory insurance tax statute is to protect Tennessee insurance companies by encouraging foreign jurisdictions not to impose heavier burdens on Tennessee companies than Tennessee imposes upon their companies who come here to do business. Republic Ins. Co. v. Oakley, 637 S.W.2d 448, 1982 Tenn. LEXIS 336 (Tenn. 1982).

3. Construction.

Section 56-4-210 and this section are to be construed together, in harmony with each other, so as not to make them repugnant to each other. Williams v. Thomas Jefferson Ins. Co., 215 Tenn. 356, 385 S.W.2d 908, 1965 Tenn. LEXIS 623 (1965).

Pennsylvania insurers acting in Tennessee were liable for retaliatory taxes based on surcharges in 77 Pa.C.S. §§ 1000.2, 516, and 999 because 34 Pa. Code § 121.33(4) showed insurers, as opposed to employers, were ultimately liable for the surcharges, despite 71 Pa.C.S. § 578, so the surcharges were imposed on Tennessee insurers doing business in Pennsylvania. ACE Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 460 (Tenn. Ct. App. July 31, 2014), rev'd, Chartis Cas. Co. v. State, 475 S.W.3d 240, 2015 Tenn. LEXIS 813 (Tenn. Oct. 2, 2015).

Charges imposed by New York on Tennessee insurers doing business in New York were includable in a retaliatory tax calculation because the charges (1) were not charges paid by policyholders, so the charges were imposed on the insurers, under N.Y. Workers' Comp. Law § 151(2)(c); and (2) were not an administrative pass through of a tax. Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 465 (Tenn. Ct. App. July 31, 2014), appeal denied, Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 38 (Tenn. Jan. 16, 2015).

Charges imposed by New York on Tennessee insurers doing business in New York were not includable in a retaliatory tax calculation because the charges were fees imposed on policyholders which the insurers were required to collect and forward to the state pursuant to an essentially ministerial function. Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 465 (Tenn. Ct. App. July 31, 2014), appeal denied, Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 38 (Tenn. Jan. 16, 2015).

Tennessee Department of Commerce and Insurance (Department) did not violate due process by changing position on the calculation of a retaliatory tax on New York insurers because the Department merely recalculated the tax after becoming aware of new information. Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 465 (Tenn. Ct. App. July 31, 2014), appeal denied, Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 38 (Tenn. Jan. 16, 2015).

Tennessee Department of Commerce and Insurance (Department) did not violate equal protection by imposing a retaliatory tax on New York insurers because deterring barriers to interstate insurance business by imposing the tax was a legitimate state purpose. Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 465 (Tenn. Ct. App. July 31, 2014), appeal denied, Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 38 (Tenn. Jan. 16, 2015).

Imposition of a retaliatory tax on New York insurers did not violate the full faith and credit clause in U.S. Const. art. IV, § 1 because no misconstruction of New York law was brought to the court's attention. Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 465 (Tenn. Ct. App. July 31, 2014), appeal denied, Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 38 (Tenn. Jan. 16, 2015).

Imposing a retaliatory tax on New York insurers did not violate the commerce clause because the McCarran-Ferguson Act removes entirely any commerce clause restriction on Tennessee's power to tax the insurance business. Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 465 (Tenn. Ct. App. July 31, 2014), appeal denied, Chubb Indem. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 38 (Tenn. Jan. 16, 2015).

Tennessee Department of Commerce and Insurance (Department) did not violate due process or the Uniform Administrative Procedures Act, T.C.A. § 4-5-101 et seq., by changing the Department's position on the calculation of a retaliatory tax without notice or a hearing because (1) the Department only recalculated the tax based on new information; and (2) such recalculation was not a new rule. Zurich Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 466 (Tenn. Ct. App. July 31, 2014), appeal denied, Zurich Am. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 32 (Tenn. Jan. 16, 2015), cert. denied, Zurich Am. Ins. Co. v. Tennessee, 135 S. Ct. 2860, 192 L. Ed. 2d 896, 2015 U.S. LEXIS 4163, 83 U.S.L.W. 3911.

Tennessee Department of Commerce and Insurance (Department) did not violate full faith and credit by imposing a retaliatory tax on New York insurers doing business in Tennessee because no misconstruction of New York law was brought to the court's attention. Zurich Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 466 (Tenn. Ct. App. July 31, 2014), appeal denied, Zurich Am. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 32 (Tenn. Jan. 16, 2015), cert. denied, Zurich Am. Ins. Co. v. Tennessee, 135 S. Ct. 2860, 192 L. Ed. 2d 896, 2015 U.S. LEXIS 4163, 83 U.S.L.W. 3911.

Tennessee Department of Commerce and Insurance (Department) did not violate equal protection by imposing a retaliatory tax on New York insurers doing business in Tennessee because the tax promoted the legitimate state purpose of removing barriers to interstate business. Zurich Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 466 (Tenn. Ct. App. July 31, 2014), appeal denied, Zurich Am. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 32 (Tenn. Jan. 16, 2015), cert. denied, Zurich Am. Ins. Co. v. Tennessee, 135 S. Ct. 2860, 192 L. Ed. 2d 896, 2015 U.S. LEXIS 4163, 83 U.S.L.W. 3911.

Charges New York imposed on insurers were not used to calculate a retaliatory tax imposed on New York insurers doing business in Tennessee because insurers merely collected the charges from policyholders and forwarded the charges to the state. Zurich Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 466 (Tenn. Ct. App. July 31, 2014), appeal denied, Zurich Am. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 32 (Tenn. Jan. 16, 2015), cert. denied, Zurich Am. Ins. Co. v. Tennessee, 135 S. Ct. 2860, 192 L. Ed. 2d 896, 2015 U.S. LEXIS 4163, 83 U.S.L.W. 3911.

Charges New York imposed on insurers were used to calculate a retaliatory tax on New York insurers doing business in Tennessee because the charges were imposed on insurers, under N.Y. Workers' Comp. Law § 151(2)(c), rather than policyholders. Zurich Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 466 (Tenn. Ct. App. July 31, 2014), appeal denied, Zurich Am. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 32 (Tenn. Jan. 16, 2015), cert. denied, Zurich Am. Ins. Co. v. Tennessee, 135 S. Ct. 2860, 192 L. Ed. 2d 896, 2015 U.S. LEXIS 4163, 83 U.S.L.W. 3911.

Under the retaliatory tax statute, it is the levy, or burden, imposed that is examined, not other statutes that may operate to reduce the effect of the burden imposed on individual companies; therefore, the assessments should not be reduced or eliminated by the reimbursements, and the same principles also apply to gross paid losses. Companion Prop. & Cas. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. App. LEXIS 33 (Tenn. Ct. App. Jan. 26, 2015), appeal denied, — S.W.3d —, 2015 Tenn. LEXIS 372 (Tenn. May 14, 2015).

Burden need not be a “tax” to fall within the parameters of Tennessee's retaliatory tax because the language of the statute is sufficiently broad to encompass almost any burden imposed by another state upon a Tennessee insurance company; the statute It does not address itself to the other state's statutes which do not impose a burden on Tennessee insurance companies. Companion Prop. & Cas. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. App. LEXIS 33 (Tenn. Ct. App. Jan. 26, 2015), appeal denied, — S.W.3d —, 2015 Tenn. LEXIS 372 (Tenn. May 14, 2015).

4. Tax Credits.

An insurance company which is subject to the retaliatory or reciprocity tax provided by this section is entitled to the credits provided by § 56-4-210 for investments in the state of Tennessee. Williams v. Thomas Jefferson Ins. Co., 215 Tenn. 356, 385 S.W.2d 908, 1965 Tenn. LEXIS 623 (1965).

5. Tax Properly Imposed.

Tennessee Claims Commission properly imposed a retaliatory premium tax on Pennsylvania insurers doing business in Tennessee because the Pennsylvania statutes at issue, read in pari materia, imposed assessments on insurers, not policyholders, each assessment constituted a burden that was imposed on a Tennessee insurer who provided coverage in Pennsylvania, and there was no violation of the Uniform Administrative Procedures Act or the federal constitution. Am. Cas. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 458 (Tenn. Ct. App. July 31, 2014), rev'd, Chartis Cas. Co. v. State, 475 S.W.3d 240, 2015 Tenn. LEXIS 813 (Tenn. Oct. 2, 2015).

Tennessee Claims Commission properly imposed a retaliatory insurance premium tax on New York insurers doing business in Tennessee because, while New York's Fire Insurance and Motor Vehicle laws passed the charges on to the policy holder, the New York workers' compensation statutes at issue imposed assessments on Tennessee insurers who provided such coverage in New York, and there was no violation of the Uniform Administrative Procedures Act or the federal constitution. Am. Home Assur. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 459 (Tenn. Ct. App. July 31, 2014), appeal denied, — S.W.3d —, 2015 Tenn. LEXIS 47 (Tenn. Jan. 16, 2015).

Tennessee Claims Commission properly imposed a retaliatory insurance premium tax on Pennsylvania insurers doing business in Tennessee because the Pennsylvania statutes at issue, read in pari materia, imposed assessments on insurers, not policyholders, each assessment constituted a burden that was imposed on a Tennessee insurer who provided coverage in Pennsylvania, and there was no violation of the Uniform Administrative Procedures Act or the federal constitution. Valley Forge Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 461 (Tenn. Ct. App. July 31, 2014), rev'd, Chartis Cas. Co. v. State, 475 S.W.3d 240, 2015 Tenn. LEXIS 813 (Tenn. Oct. 2, 2015).

Tennessee Claims Commission properly imposed a retaliatory insurance premium tax on New York insurers doing business in Tennessee because the workers' compensation statutes at issue imposed assessments on insurers, each assessment constituted a burden that was imposed on a Tennessee insurer who provided such coverage in New York, and there was no violation of the Uniform Administrative Procedures Act or the federal constitution. Northern Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 462 (Tenn. Ct. App. July 31, 2014), appeal denied, Northern Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 40 (Tenn. Jan. 16, 2015).

Tennessee Claims Commission properly imposed a retaliatory insurance premium tax on Pennsylvania insurers doing business in Tennessee because the Pennsylvania statutes at issue, read in pari materia, imposed assessments on insurers, not policyholders, each assessment constituted a burden that was imposed on a Tennessee insurer who provided such coverage in Pennsylvania, and there was no violation of the Uniform Administrative Procedures Act or the federal constitution. Chartis Cas. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 463 (Tenn. Ct. App. July 31, 2014), rev'd, 475 S.W.3d 240, 2015 Tenn. LEXIS 813 (Tenn. Oct. 2, 2015).

Tennessee Claims Commission erred in ruling that the Department of Commerce and Insurance did not calculate the South Carolina tax burden correctly because the Department was correct in excluding reimbursements received by South Carolina insurance companies from the South Carolina Second Injury Fund from the calculation of the South Carolina burden for retaliatory tax purposes under the retaliatory tax law; the assessments were separate from the reimbursements. Companion Prop. & Cas. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. App. LEXIS 33 (Tenn. Ct. App. Jan. 26, 2015), appeal denied, — S.W.3d —, 2015 Tenn. LEXIS 372 (Tenn. May 14, 2015).

6. Imposition of Tax.

Tennessee Department of Commerce and Insurance properly imposed Tennessee's retaliatory insurance premium tax statute because each of the Pennsylvania workmen's compensation fund assessments by Pennsylvania was a burden that a Tennessee workers' compensation insurer that insured employers in Pennsylvania had to bear. Old Republic Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 457 (Tenn. Ct. App. July 31, 2014), rev'd, Chartis Cas. Co. v. State, 475 S.W.3d 240, 2015 Tenn. LEXIS 813 (Tenn. Oct. 2, 2015).

Four insurance charges under New York law were properly included by the Tennessee Department of Commerce and Insurance in a retaliatory tax calculation because they were not an administrative pass through of a tax. However, two of the charges were not properly included, because New York set up a pass through as to these fees. Great Am. Ins. Co. v. State, — S.W.3d —, 2014 Tenn. App. LEXIS 464 (Tenn. Ct. App. July 31, 2014), appeal denied, Great Am. Ins. Co. v. State, — S.W.3d —, 2015 Tenn. LEXIS 35 (Tenn. Jan. 16, 2015).

Court of appeals erred in affirming the Tennessee Claims Commission's decision denying Pennsylvania-domiciled insurance companies a refund of retaliatory taxes because the Commission had no authority to impose the taxes; the administrative regulations adopted by the Pennsylvania Department of Labor and Industry evinced an intent to effectuate Pennsylvania Workers'  Compensation Act, as amended by 71 Pa. Cons. Stat. Ann. § 578, in a manner that would avoid the imposition of retaliatory taxes. Chartis Cas. Co. v. State, 475 S.W.3d 240, 2015 Tenn. LEXIS 813 (Tenn. Oct. 2, 2015).

Collateral References.

Constitutionality, construction, and effect of retaliatory statutes. 91 A.L.R. 795, 30 A.L.R.4th 873.

Meaning of word “similar” in retaliatory statute as to fees, fines, and penalties to be imposed on foreign insurance companies. 17 A.L.R. 98.

56-4-219. Refund of erroneously paid taxes.

  1. With respect to any revenues or receipts collected by the department, any other law to the contrary notwithstanding, the amounts determined to have been erroneously paid may be refunded by the procedure developed by the commissioner of finance and administration and approved by the comptroller of the treasury.
  2. The procedure shall provide that no refund shall be made unless within three (3) years from December 31 of the year in which the erroneous payment was made the refund is either requested by the claimant or made by the state on its own motion. A refund of taxes that is based solely on a final court adjudication shall not be made to any person that is not either a party to the action or a party to another similar action brought pursuant to title 67, chapter 1, part 9. The decision of the appropriate state official with respect to any refund request shall be final and not subject to review in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1984, ch. 633, § 1.

Cross-References. Refund of erroneously paid fees, § 56-4-105.

NOTES TO DECISIONS

1. Jurisdiction of Tennessee Claims Commission.

T.C.A. § 56-4-219 is not in conflict with § 9-8-307(a)(1)(O), vesting exclusive jurisdiction for the recovery of insurance taxes in the Tennessee claims commission. Stewart Title Guar. Co. v. McReynolds, 886 S.W.2d 233, 1994 Tenn. App. LEXIS 296 (Tenn. Ct. App. 1994).

56-4-220. Exemption of life insurance and annuity premiums.

  1. The rate of taxation shall be zero (0) on all premiums or considerations under life insurance policies or annuity contracts issued in connection with any pension plan, annuity plan or profit-sharing plan qualified for federal income tax advantages under the Internal Revenue Code of 1954, part I, subchapter D, subtitle A (26 U.S.C. § 401 et seq.), or to any trust qualified for income tax advantages under the Internal Revenue Code of 1954, § 501(a) (26 U.S.C. § 501(a)).
  2. This section is declared to be remedial in nature and to that end shall apply to all such life insurance policies, annuity contracts or trusts occurring on or after January 1, 1988.

Acts 1988, ch. 1038, §§ 1, 2.

56-4-221. In-state insurance companies — Reinsurance agreements with insurance company affiliates.

  1. An in-state insurance company that has an insurance company affiliate may enter into reinsurance agreements with the affiliate, pursuant to which the tax imposed on gross premiums under § 56-4-205 is allocated from the ceding company to the reinsuring company. The reinsurance agreements shall be effective to enable the reinsuring company to use the premium tax liability so allocated as a credit under § 56-4-217; provided, that the ceding company may not use as a credit under § 56-4-217 any tax liability allocated by the ceding company to the reinsuring company. No allocation of premium tax liability as described in this section shall relieve the ceding company from responsibility for payment of the full premium tax on insurance business written in this state and for the filing of sworn returns in accordance with this section. Nothing in this section shall result in a reduction of the premium tax and franchise and excise tax liability of the ceding company from that which would have been imposed in the absence of this section.
  2. As used in this section:
    1. “In-state insurance company” means an insurance company:
      1. Having its principal place of business in this state; and
      2. That does not transact insurance business in any other state; and
    2. “Insurance company affiliate” means a corporation:
      1. Authorized to conduct insurance business in this state after March 19, 1991;
      2. That does not transact insurance business in any other state; and
      3. Fifty percent (50%) or more of the voting stock of which is directly or indirectly controlled by, or under common control with, an in-state insurance company.

Acts 1991, ch. 39, § 1.

Compiler's Notes. For elimination of the franchise and excise taxes on insurance companies, referred to in this section, see § 56-4-217.

Cross-References. Credit against premium tax liability, § 56-4-217.

Gross premiums tax, § 56-4-205.

Part 3
Investment Companies

56-4-301. Tax imposed.

  1. Every corporation, company, partnership, or individual writing, issuing, servicing and/or collecting installments on contracts now being written or issued or contracts heretofore written, issued and sold in this state, commonly known as income reserve contracts, installment investment trusts, including investors' syndicates, investment associations and the like, each of which is called an “investment company” in this part, or which corporation, company, partnership, or individual is engaged in servicing contracts now being issued or heretofore issued or collecting installments on the contracts, shall be deemed to be engaged in a business declared to be a privilege; and for the purpose of providing revenue for the state, there shall be levied against and collected from each investment company a special tax measured by gross profits or income, as defined in § 56-4-305, of the investment company or that portion of the gross profits or income as shall be allocated to the state, as provided in this part.
  2. Notwithstanding subsection (a), no tax under this part shall be imposed on any person registered as a broker or a dealer under §§ 3(a)(4) or (5) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(4) or (a)(5)), regardless of any related or incidental activities carried on by the person in connection with its business as a broker or a dealer.

Acts 1939, ch. 187, § 1; 1943, ch. 127, § 1; C. Supp. 1950, § 1248.33 (Williams, § 1248.160); Acts 1977, ch. 347, § 2; T.C.A. (orig. ed.), §§ 67-4401, 67-4-1201; Acts 2000, ch. 870, § 1.

Code Commission Notes.

Former references in this part to the commissioner or department of commerce and insurance have been changed to references to the commissioner or department of revenue in light of Executive Order No. 64 (March 26, 1985), which transferred the collection of taxes imposed upon investment companies from the department of commerce and insurance to the department of revenue.

Compiler's Notes. This part was formerly compiled as title 67, chapter 4, part 12.

Acts 2000, ch. 870, § 3 provided that the amendment by the act applies to all taxes that have not been assessed and collected as of July 17, 2000.

Cross-References. Exemption from excise tax, § 67-4-2008.

Exemption from franchise tax, § 67-4-2108.

Law Reviews.

Preferences, Priorities, and Powers of the State in the Collection of Delinquent Revenue: Tennessee's Tax Enforcement Procedures Act (Donald J. Serkin), 8 Mem. St. U.L. Rev. 707.

NOTES TO DECISIONS

1. Constitutionality.

The privilege tax on investment companies of about two percent of the gross profits or income allocated to Tennessee of intra- and interstate business not limited to soliciting under this part is not arbitrary nor confiscatory, nor in violation of the commerce clause of the federal constitution since interstate transactions can be considered incidentally in a fair, reasonable and uniform intrastate tax. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

2. Impairment of Contract.

Where tax which is imposed on privilege of doing investment business in state is increased, this does not impair obligation of contract where the tax is fair, reasonable and uniform. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

3. Nature of Tax.

The privilege tax imposed on investment companies under this part is not a tax on gross receipts or gross profits, but the gross receipts are used solely to measure the tax. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

56-4-302. Nature of tax — Exemption from other taxes.

  1. The business declared in this part to be a privilege is for state purposes only and taxable as a privilege by the state alone, and no county or municipality may impose any tax upon the privilege, or upon the privilege of conducting business or acting as agent or representative of any investment company, as defined in §§ 56-4-301 and 56-4-303.
    1. The tax provided in this part shall be in lieu of and substituted for any and all other taxes heretofore imposed by any law, general or special, against or on the investment companies, as defined in §§ 56-4-301 and 56-4-303, except ad valorem taxes upon real estate and tangible personal property owned by the investment companies and located in the state.
    2. The exemption from other taxes shall include all other privilege taxes, such as taxes upon or for the use of the franchise, capital, notes, reserves, surpluses, loans, accounts and other income and profits of the investment companies. The members, shareholders, account holders, certificate holders, or contract holders are exempt from any and all privilege taxes and income taxes imposed by any law now on the statute books, upon profits, dividends, interest or income in the nature of profits, dividends, or interest received from the investment company.
  2. Nothing in this section shall be construed to provide an exemption from the sales and use tax imposed by title 67, chapter 6.

Acts 1939, ch. 187, §§ 5, 6; C. Supp. 1950, §§ 1248.37, 1248.38 (Williams, §§ 1248.164, 1248.165); modified; T.C.A. (orig. ed.), §§ 67-4406, 67-4410, 67-4-1202; Acts 2005, ch. 499, § 23.

NOTES TO DECISIONS

1. Estoppel.

Where foreign investment corporation is qualified to do business in this state and is granted exemptions from taxes other than imposed under this section, they are estopped from claiming that this part imposing privilege tax does not apply to them. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

56-4-303. Business within state.

  1. Each investment company issuing its certificates, investment contracts, income reserve contracts, or instruments of like nature, pursuant to applications or orders for certificates, investment contracts, income reserve contracts, or instruments of like nature, solicited within the state, shall be deemed to be engaged in business within the state, and shall be subject to the terms and provisions of this part.
  2. Each investment company issuing certificates, investment contracts, income reserve contracts, or instruments of like nature that are delivered in the state shall be deemed to be engaged in business within the state, and shall be subject to the terms and provisions of this part.
  3. Each investment company engaged in the business of writing, issuing and/or servicing or collecting installments upon the investment contracts, being issued in this state or heretofore issued, shall be subject to the terms and provisions of this part.

Acts 1939, ch. 187, §§ 1, 2; 1943, ch. 127, § 2; C. Supp. 1950, §§ 1248.33, 1248.34 (Williams, §§ 1248.160, 1248.161); T.C.A. (orig. ed.), §§ 67-4402, 67-4-1203.

NOTES TO DECISIONS

1. Agency.

Nonresident parent investment corporation and subsidiary Minnesota investment corporation are subject to privilege tax on investment companies under this part as doing some intrastate business along with interstate business where subsidiary services contracts and accepts installment payments and both own property in state even though no contracts are accepted after tax was enacted, since the subsidiary is an agent although the companies designate it as an independent contractor. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

2. Uniformity.

Where tax which is imposed on privilege of doing investment business in state is increased, this does not impair obligation of contract where the tax is fair, reasonable and uniform. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

3. Tax Not Arbitrary.

The privilege tax on investment companies of about two percent of the gross profits or income allocated to Tennessee of intra and interstate business not limited to soliciting under this part, is not arbitrary nor confiscatory, nor in violation of the commerce clause of the federal constitution since interstate transactions can be considered incidentally in a fair, reasonable and uniform intrastate tax. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

56-4-304. Rate of tax.

  1. Each investment company, as defined in §§ 56-4-301 and 56-4-303, shall pay annually to the commissioner of revenue the tax provided under this part, which tax shall be measured as to each investment company engaged in business wholly within this state, by the entire gross profits or income of the investment company during the year for which the tax is payable; and as to each investment company engaged in business or operating partly within and partly without the state, the tax shall be measured by the portion of the gross profits or income of the investment company allocated to the state, as provided in § 56-4-306.
  2. The tax as to each investment company engaged in business or operating wholly within the state shall be an amount equivalent to two percent (2%) of the aggregate or total of the gross profits or income of the investment company, and as to each investment company engaged in business or operating partly within and partly without the state, the tax shall be an amount equivalent to two percent (2%) of the portion of the aggregate or total of the gross profits or income of the investment company allocated to this state, as provided in § 56-4-306.

Acts 1939, ch. 187, § 3; 1943, ch. 127, § 3; C. Supp. 1950, § 1248.35 (Williams, § 1248.162); modified; T.C.A. (orig. ed.), §§ 67-4403, 67-4-1204.

Code Commission Notes.

For the transfer of collection of taxes imposed upon investment companies from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

Compiler's Notes. The interest rate provided for in this section may be affected by the provision in § 67-1-801 for a rate set by the commissioner of revenue.

NOTES TO DECISIONS

1. Constitutionality.

The privilege tax on investment companies of about two percent of the gross profits or income allocated to Tennessee of intra- and interstate business not limited to soliciting under this part is not arbitrary nor confiscatory, nor in violation of the commerce clause of the federal constitution since interstate transactions can be considered incidentally in a fair, reasonable and uniform intrastate tax. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

2. Rate.

Where tax which is imposed on privilege of doing investment business in state is increased, this does not impair the obligation of contract where the tax is fair, reasonable and uniform. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

3. Measurement of Tax.

The privilege tax imposed on investment companies under this part is not a tax on gross receipts or gross profits, but the gross receipts are used solely to measure the tax. Investors Syndicate of America, Inc. Vallen, 198 Tenn. 288, 279 S.W.2d 497, 1955 Tenn. LEXIS 449 (1955).

56-4-305. “Gross profits or income” defined.

  1. “Gross profits or income,” as used in this part, means gross income from all sources, except as provided in subsection (b), including income on tax exempt securities, loans, dividends and interest on stocks, bonds or other investments, plus net rentals on real estate, less the net amount of tax paid by the investment company on its tangible assets wherever located; provided, that there shall not be included in gross profits or income any principal of loans, any premiums, service fees, or receipts from members, certificate holders or contract holders, other than interest on contract loans; and provided, further, that there shall not be included in gross profits or income interest earned but uncollected that is not more than ninety (90) days past due, and interest that is more than ninety (90) days past due shall likewise not be included in gross profits or income, unless the interest more than ninety (90) days past due has been capitalized.
  2. Nothing in this part shall be construed so as to include among the gross profits or income, exempt-interest dividends from a regulated investment company qualified under the Internal Revenue Code, subchapter M, chapter 1, subtitle A (26 U.S.C. §§ 851-858); provided, that not less than seventy-five percent (75%) of the value of the investments of the regulated investment company shall be in bonds of the state, or any county or municipality or political subdivision thereof, including any agency, board, authority or commission of any of the above.

Acts 1939, ch. 187, §§ 1, 3; 1943, ch. 127, § 1; C. Supp. 1950, §§ 1248.33, 1248.35 (Williams, §§ 1248.160, 1248.162); Acts 1977, ch. 347, § 2; T.C.A. (orig. ed.), §§ 67-4401, 67-4404, 67-4-1205.

56-4-306. Allocation — Companies doing business outside state.

The portion of the gross profits or income of the investment company to be allocated to the state where the investment company is engaged in business or operating partly within and partly without the state shall be the proportion of the gross profits or income of the investment company determined by dividing the gross amount received, during the year for which the tax is payable, from members, certificate holders or contract holders of the investment company who reside within the state, by the gross amount received during the year from all the members, certificate holders or contract holders, as the case may be, of the investment company, whether the members, certificate holders or contract holders reside within or without this state.

Acts 1939, ch. 187, § 3; C. Supp. 1950, § 1248.35 (Williams, § 1248.162); T.C.A. (orig. ed.), §§ 67-4405, 67-4-1206.

56-4-307. Annual report — Fiscal year — Annual return.

  1. An annual report shall be filed with the commissioner on or before the first day of the fourth month following the close of the investment company's fiscal year.
  2. The close of the investment company's fiscal year for purposes of this part shall coincide with the close of the investment company's fiscal year for federal income tax purposes.
  3. The annual return shall be sworn and shall be made on forms prepared and furnished by the commissioner showing the total or aggregate gross income or profits as defined in § 56-4-305, and showing appropriate figures necessary to determine what portion of gross profits or income shall be allocated to the state.

Acts 1939, ch. 187, § 4; C. Supp. 1950, § 1248.36 (Williams, § 1248.163); T.C.A. (orig. ed.), §§ 67-4407, 67-4-1207; Acts 1986, ch. 598, § 12.

Code Commission Notes.

For the transfer of collection of taxes imposed upon investment companies from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

Compiler's Notes. Acts 1986, ch. 598, § 19 provided that this section, as amended by that act, shall apply only to returns filed based on activity occurring after January 1, 1986, with a short period return to be filed April 1, 1986, covering the period from July 1, 1985, through December 31, 1985.

56-4-308. Powers of commissioner — Failure to file return or filing false return.

  1. The commissioner is vested with the following powers:
    1. To examine at the expense of the investment company, subject to this part, the books and records, for the purpose of determining the amount of taxes due, in the event of the failure of the investment company to make its return or for the purpose of verifying or correcting any return made; and
    2. To issue distress warrants for the collection of any tax due and unpaid, or to institute suit in the courts of law or chancery, for the use and benefit of the state.
  2. Upon the failure or refusal of any investment company subject to this part to file a return or upon the filing of a false return, the investment company shall thereafter be estopped to dispute the accuracy of the assessment made by the commissioner.

Acts 1939, ch. 187, § 7; C. Supp. 1950, § 1248.39 (Williams, § 1248.166); T.C.A. (orig. ed.), §§ 67-4408, 67-4-1208; Acts 1988, ch. 526, § 11.

Code Commission Notes.

For the transfer of collection of taxes imposed upon investment companies from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

Compiler's Notes. Acts 1988, ch. 526, § 45 provided that the amendment by that act shall apply to all assessments of penalty made on or after January 1, 1989.

56-4-309. Disposition of revenue.

The net amount of all taxes collected under this part shall be payable by the commissioner to the state treasurer, and shall become part of the general funds of the state.

Acts 1939, ch. 187, § 8; C. Supp. 1950, § 1248.40 (Williams, § 1248.167); T.C.A. (orig. ed.), §§ 67-4409, 67-4-1209.

Code Commission Notes.

For the transfer of collection of taxes imposed upon investment companies from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

Part 4
Production Credit Associations

56-4-401. “Production credit association” defined — Associations subject to tax.

As used in this part, unless the context otherwise requires, “production credit association” means a corporation organized and chartered pursuant to § 20 of the Farm Credit Act of 1933, Act June 16, 1933, ch. 98, § 20, 48 Stat. 259, engaged in business in this state, and not exempt by virtue of the laws of the United States from taxation by this state.

Acts 1951, ch. 45, § 1 (Williams, § 1248.179); modified; T.C.A. (orig. ed.), §§ 67-4501, 67-4-1301.

Code Commission Notes.

For transfer of collection of taxes imposed upon production credit associations from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

Compiler's Notes. The Farm Credit Act of 1933, referred to in this section, was compiled in 12 U.S.C. § 1131 et seq., but has been repealed by several subsequent acts of Congress.

Cross-References. Exemption from excise tax, § 67-4-2008.

Exemption from franchise tax, § 67-4-2108.

Law Reviews.

State and Local Taxation of Financial Institutions: An Opportunity for Reform (C. James Judson & Susan G. Duffy), 39 Vand. L. Rev. 1057 (1986).

56-4-402. Nature of tax — Exemption from other taxes.

  1. The business declared to be taxable in this part is for state purposes only and taxable by the state alone and no county or municipality may impose any taxes upon the business, except ad valorem taxes upon real estate and tangible personal property owned by the production credit association.
  2. The tax shall be in lieu of, and in substitution for, any and all other taxes levied against or on the association, except ad valorem taxes upon real estate and tangible personal property owned by the association.
  3. Nothing in this section shall be construed to provide an exemption from the sales and use tax imposed by title 67, chapter 6.

Acts 1951, ch. 45, §§ 4, 5 (Williams, §§ 1248.182, 1248.183); T.C.A. (orig. ed.), §§ 67-4503, 67-4507, 67-4-1302; Acts 2005, ch. 499, § 24.

56-4-403. Tax imposed — Computation.

  1. Each production credit association shall pay annually to the commissioner of revenue the specified privilege tax provided under this part, which tax is to be measured by the income of the association, and shall be computed at the rate of three and three fourths percent (3.75%) of the net receipts of the association.
    1. Net receipts shall be computed on an accrual basis and are defined to be the gross receipts from the following sources:
      1. Interest on loans;
      2. Loan service fees;
      3. Interest on securities unless by law otherwise tax exempt;
      4. Compensation or fees or services performed;
      5. Capital gains from the sale of real and personal property; and
      6. Other receipts; LESS
      1. Patronage refunds; and
      2. All expenses of the association, which expenses shall include, in addition to the usual and normal expenses of operation:
        1. (a)  Bad debts charged off; or
          1. (i)  (a)  Bad debts charged off; or
          2. Annual additions for valuation reserves against loan assets in an amount equal to one half of one percent (0.5%) of the loans outstanding at the end of the fiscal year, to the extent that earnings in the year in excess of other operating expenses permit, until the reserves are equal to, but are not in excess of, three and one half percent (3.5%) of loans outstanding at the end of the fiscal year, whichever sum is greater;
        2. Interest paid or accrued;
        3. Legal recording and abstract fees;
        4. Depreciation on capital assets;
        5. Federal, county and city taxes paid or accrued;
        6. Operating expenses on acquired property;
        7. Capital losses; and
        8. Other ordinary and necessary items of expense.

Acts 1951, ch. 45, § 2 (Williams, § 1248.180); Acts 1971, ch. 67, § 1; impl. am. Acts 1971, ch. 137, § 2; Acts 1975, ch. 343, § 1; T.C.A (orig. ed.), §§ 67-4502, 67-4-1303.

Code Commission Notes.

For transfer of collection of taxes imposed upon production credit associations from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

56-4-404. Levy and payment dates.

  1. The annual tax to be levied and collected under this part shall be levied as of December 31 in each and every year, and shall be due and payable by not later than March 1 in each and every year.
  2. On or before March 1 in each and every year, each association shall make a sworn return to the commissioner, showing the taxable income of the association, as defined in § 56-4-402.

Acts 1951, ch. 45, § 3 (Williams, § 1248.181); T.C.A. (orig. ed.), §§ 67-4501, 67-4-1304.

Code Commission Notes.

For transfer of collection of taxes imposed upon production credit associations from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

56-4-405. Powers of commissioner — Failure or refusal to file a return, filing a false and fraudulent return.

  1. The commissioner is vested with the following powers:
    1. To examine the books and records of the production credit association for the purpose of determining the amount of taxes due, in the event of the failure of the association to make its return or for the purpose of verifying or correcting any return made; and
    2. To issue distress warrants for the collection of any taxes due and unpaid or to institute suit in the courts of law or chancery, for the use and benefit of the state; and
  2. Upon the failure or refusal of any association to file a return, or upon the filing of a false and fraudulent return, the association shall thereafter be estopped to dispute the accuracy of the assessment made by the commissioner.

Acts 1951, ch. 45, § 6 (Williams, § 1248.184); T.C.A. (orig. ed.), §§ 67-4505, 67-4-1305; Acts 1988, ch. 526, § 12.

Code Commission Notes.

For transfer of collection of taxes imposed upon production credit associations from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

Compiler's Notes. Acts 1988, ch. 526, § 45 provided that the amendment by that act shall apply to all assessments of penalty made on or after January 1, 1989.

The interest rate provided for in this section may be affected by the provision in § 67-1-801 for a rate set by the commissioner of revenue.

56-4-406. Disposition of revenue.

The net amount of all taxes collected under this part shall be payable by the commissioner to the state treasurer, and shall become part of the general funds of the state.

Acts 1951, ch. 45, § 7 (Williams, § 1248.185); T.C.A. (orig. ed.), §§ 67-4506, 67-4-1306.

Code Commission Notes.

For transfer of collection of taxes imposed upon production credit associations from the department of commerce and insurance to the department of revenue, see Executive Order No. 64 (March 26, 1985).

Chapter 5
Rates and Rating Organizations

Part 1
General Provisions

Code Commission Notes.

This part, title 56, chapter 5, part 1 was renumbered from title 56, chapter 5, part 3 by authority of the Code Commission in 2016.

56-5-101. Application of part.

This part applies to all kinds of insurance written on risks in this state by any insurer authorized to do business in this state, except:

  1. Life insurance;
  2. Annuities;
  3. Disability insurance;
  4. Ocean marine insurance;
  5. Reinsurance;
  6. Aircraft liability and aircraft hull insurance;
  7. Title insurance;
  8. Credit life insurance; and
  9. Credit accident and health insurance.

Acts 1983, ch. 66, § 2; 2006, ch. 689, § 1; T.C.A. § 56-5-301.

Code Commission Notes.

This section was renumbered from § 56-5-301 to § 56-5-101 by authority of the Code Commission in 2016.

Compiler's Notes. The Code Commission transferred numerous sections in this title to this part, effective upon the 2016 replacement of this volume. See the following parallel reference table for the old and new locations.

Old Sections  New Sections

56-5-301      56-5-101

56-5-302      56-5-102

56-5-303      56-5-103

56-5-304      56-5-104

56-5-305      56-5-105

56-5-306      56-5-106

56-5-307      56-5-107

56-5-308      56-5-108

56-5-309      56-5-109

56-5-310      56-5-110

56-5-311      56-5-111

56-5-312      56-5-112

56-5-313      56-5-113

56-5-314      56-5-114

56-5-315      56-5-115

56-5-316      56-5-116

56-5-317      56-5-117

56-5-318      56-5-118

56-5-319      56-5-119

56-5-320      56-5-120

56-5-321      56-5-121

56-5-322      56-5-122

56-5-323      56-5-123

Cross-References. Cancellation of commercial risk insurance, title 56, ch. 7, part 18.

56-5-102. Part definitions.

As used in this part, unless the context otherwise requires:

  1. “Advisory organization” means any person or organization, other than a rate service organization, that assists insurers as authorized by § 56-5-111;
  2. “Advisory prospective loss costs” means historical aggregate losses and loss adjustment expenses projected through development to their ultimate value and through trending to a future point in time. “Advisory prospective loss costs” does not include provisions for profit or for expenses other than loss adjustment expenses;
  3. “Commercial risk insurance” means insurance within the scope of this part that is not personal risk insurance;
  4. “Commissioner” means the commissioner of commerce and insurance;
  5. “Joint underwriting” means a voluntary arrangement established on an ad hoc basis to provide insurance coverage for a commercial risk pursuant to which two (2) or more insurers separately contract with the insured at a price and under policy terms agreed upon between the insurers;
  6. “Multiplier” means a workers' compensation insurance company's determination of the profits and expenses, other than loss expense and loss adjustment expense, all other applicable rating factors, including, but not limited to, schedule rating, experience rating and small deductible credits, and deviation from advisory prospective loss costs associated with writing workers' compensation insurance, which shall be expressed as a single multiplicative factor to be applied equally and uniformly to the advisory prospective loss costs approved by the commissioner in making rates for all classification of risks utilized by the company;
  7. “Personal risk insurance” means property and casualty insurance that provides:
    1. Insurance on one (1) to four (4) family dwelling units, including mobile homes;
    2. Individual insurance on household goods in dwellings, mobile homes, apartments, or other residential facilities;
    3. Insurance on every kind of farm property or farm risk, including farm premises, buildings, machinery, equipment, motor vehicles, livestock, and other personal property used in farming operations;
    4. Insurance on private passenger nonfleet motor-driven vehicles, not used for hire, which are used for personal, farm or family needs. The motor-driven vehicles include pickups, station wagons, vans, and vehicles with fewer than four (4) wheels;
    5. Insurance on pleasure watercraft that are used for personal, farm or family needs; and
    6. Insurance sold in connection with and incidental to rental agreements for a period not to exceed ninety (90) days;
  8. “Pool” means a voluntary arrangement other than a residual market mechanism, established on an ongoing basis, pursuant to which two (2) or more insurers participate in the sharing of risks on a predetermined basis. The pool may operate through an association, syndicate or other pooling agreement;
  9. “Rate” includes advisory prospective loss costs;
  10. “Rate service organization” means any person or organization that assists insurers in ratemaking or filing as authorized by § 56-5-110;
  11. “Rate service organization” and “advisory organization” do not include joint underwriting organizations, actuarial, legal or other consultants, a single insurer, any employees of an insurer, or insurers under common control or management or their employees or managers;
  12. “Residual market mechanism” means an arrangement, either voluntary or mandated by law, involving participation by insurers in the equitable apportionment among them of insurance that may be afforded applicants who are unable to obtain insurance through ordinary methods;
  13. “Supplementary rate information” includes any manual or plan of rates, classification, rating schedule, minimum premium, policy fee, rating rule, loss adjustment expense, including defense costs incurred for any reason under the policy, and any other similar information needed to determine the applicable rate in effect or to be in effect; and
  14. “Supporting information” means:
    1. The experience and judgment of the filer and the experience or data of other insurers or organizations relied upon by the filer;
    2. The interpretation of any statistical data relied upon by the filer;
    3. A description of methods used in making the rates; and
    4. Other similar information relied upon by the filer.

Acts 1983, ch. 66, § 3; 1996, ch. 944, § 34; 1997, ch. 533, § 8; 2000, ch. 651, § 2; 2001, ch. 192, §§ 4, 14; 2015, ch. 188, § 1; T.C.A. § 56-5-302.

Code Commission Notes.

This section was renumbered from § 56-5-302 to § 56-5-102 by authority of the Code Commission in 2016.

Compiler's Notes. Acts 1996, ch. 944, § 42 provided that nothing in §§ 28-41 of the act shall apply to pooling agreements described in § 50-6-405(c).

Acts 1996, ch. 944, § 43(a), as amended by Acts 2001, ch. 192, § 2(a), provided that §§ 31-42 of the act are repealed, effective July 1, 2007, and that the affected sections of titles 50 and 56 shall be revived and reenacted in their prior versions on that date. Acts 2007, ch. 359, §§ 1 and 2 provided that the provisions of Acts 1996, ch. 944, § 43(a) and Acts 2001, ch. 192, § 2(a) are deleted effective June 5, 2007.

Sections 56-5-310 and 56-5-311 referenced in this section were renumbered as 56-5-110 and 56-5-111, respectively, by the authority of the code commission in 2016.

Textbooks. Tennessee Jurisprudence, 18 Tenn. Juris., Mandamus, § 11.

NOTES TO DECISIONS

1. Obtaining Insurance “in the Regular Manner.”

The question as to what constitutes obtaining insurance “in the regular manner” or “through ordinary methods” is one of fact for determination by the commissioner. National Council on Compensation Ins. v. Gaddis, 786 S.W.2d 240, 1989 Tenn. App. LEXIS 545 (Tenn. Ct. App. 1989).

56-5-103. Standards.

  1. General.  Rates:
    1. Shall not be excessive, inadequate or unfairly discriminatory; or
    2. In the case of an advisory prospective loss costs filing, shall reasonably reflect projected losses and loss adjustment expenses.
  2. Excessiveness.  A rate is excessive if it is likely to produce a profit that is unreasonably high for the insurance provided or if the expense provision included in the rate is unreasonably high in relation to the services rendered.
  3. Inadequacy.  A rate is not inadequate unless the rate is clearly insufficient to sustain projected losses and expenses in the class of business to which it applies and the use of the rate has or, if continued, will have the effect of substantially lessening competition or the tendency to create a monopoly.
  4. Unfair Discrimination.  Unfair discrimination exists if, after allowing for practical limitations, price differentials fail to reflect equitably the differences in expected losses and expenses. A rate is not unfairly discriminatory because different premiums result for policyholders with like loss exposures with different expenses, or like expenses but different loss exposures, so long as the rate reflects the differences with reasonable accuracy.

Acts 1983, ch. 66, § 4; 1996, ch. 944, § 35; T.C.A. § 56-5-303.

Code Commission Notes.

This section was renumbered from § 56-5-303 to § 56-5-103 by authority of the Code Commission in 2016.

Compiler's Notes. Acts 1996, ch. 944, § 42 provided that nothing in §§ 28-41 of that act shall apply to pooling agreements described in § 50-6-405(c).

Acts 1996, ch. 944, § 43(a), as amended by Acts 2001, ch. 192, § 2(a), provided that §§ 31-42 of the act are repealed, effective July 1, 2007, and that the affected sections of titles 50 and 56 shall be revived and reenacted in their prior versions on that date. Acts 2007, ch. 359, §§ 1 and 2 provided t