HB-6520, As Passed Senate, December 19, 2018

SUBSTITUTE FOR

HOUSE BILL NO. 6520

A bill to amend 1956 PA 218, entitled

"The insurance code of 1956,"

(MCL 500.100 to 500.8302) by adding chapter 17A and section 3032.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

CHAPTER 17A

CORPORATE GOVERNANCE ANNUAL DISCLOSURE

Sec. 1751. This chapter does not prescribe or impose corporate

governance standards and internal procedures beyond that which is

required under applicable state corporate law. However, this

chapter does not limit the director's authority, or the rights or

obligations of third parties, under chapter 2.

Sec. 1753. This chapter applies to all insurers domiciled in

this state.

Sec. 1755. As used in this chapter:

(a) "Corporate governance annual disclosure" or "CGAD" means a

confidential report filed by the insurer or insurance group made in

accordance with the requirements of this chapter.

(b) "Insurance group" means insurers and affiliates included

within an insurance holding company system.

(d) "NAIC" means that term as defined in section 1701.

(e) "ORSA Summary Report" means that term as defined in

section 1701.

Sec. 1757. (1) An insurer, or the insurance group of which the

insurer is a member, shall, no later than June 1, 2020 and each

June 1 after that date, submit to the director a corporate

governance annual disclosure as prescribed by the director.

Notwithstanding any request from the director made under subsection

(3), if the insurer is a member of an insurance group, the insurer

shall submit the report required by this section to the

commissioner of the lead state for the insurance group, in

accordance with the laws and requirements of the lead state.

(2) The CGAD required under subsection (1) must include a

signature of the insurer or insurance group's chief executive

officer or corporate secretary attesting to the best of that

individual's belief and knowledge that the insurer or insurance

group has implemented the corporate governance practices and that a

copy of the disclosure has been provided to the insurer's board of

directors or the appropriate committee of the insurer's board of

directors.

(3) An insurer not required to submit a CGAD under this

section shall submit a CGAD on the director's request.

(4) For 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, or the individual legal entity

level, or any 1 or more of those levels, depending on how the

insurer or insurance group has structured its system of corporate

governance. The insurer or insurance group is encouraged to make

the CGAD disclosures at the level at which the insurer's or

insurance group's risk appetite is determined, or at which the

earnings, capital, liquidity, operations, and reputation of the

insurer are overseen collectively and at which the supervision of

those factors is coordinated and exercised, or the level at which

legal liability for failure of general corporate governance duties

would be placed. If the insurer or insurance group determines the

level of reporting based on the criteria described in this

subsection, the insurer or insurance group shall indicate which of

the 3 criteria was used to determine the level of reporting and

explain any subsequent changes in level of reporting.

(5) The review of the CGAD and any additional requests for

information must be made through the lead state in accordance with

the laws and requirements of the lead state.

(6) An insurer or insurance group that provides information

substantially similar to the information required by this chapter

in other documents provided to the director, including proxy

statements filed in conjunction with Form B requirements, or other

state or federal filings provided to the department is not required

to duplicate that information in the CGAD and is only required to

cross-reference the document in which the information is included.

Sec. 1759. (1) The insurer or insurance group has discretion

over the responses to the CGAD inquiries if the CGAD contains the

material information necessary to permit the director to gain an

understanding of the insurer's or group's corporate governance

structure, policies, and practices. The director may request

additional information that he or she considers material and

necessary to provide the director with a clear understanding of the

corporate governance policies, the reporting or information system,

or the controls implementing those policies.

(2) Notwithstanding subsection (1), the CGAD must be prepared

as prescribed by the director. Documentation and supporting

information related to the CGAD must be maintained and made

available on examination or on request of the director.

Sec. 1761. (1) Documents, materials, or other information,

including the CGAD, in the possession or control of the director

that are obtained by, created by, or disclosed to the director or

any other person under this chapter are considered proprietary and

to contain trade secrets. The documents, materials, or other

information are confidential and privileged, are not subject to

disclosure under the freedom of information act, 1976 PA 442, MCL

15.231 to 15.246, are not subject to subpoena, and are not subject

to discovery or admissible in evidence in any private civil action.

However, the director may use the documents, materials, or other

information in the furtherance of any regulatory or legal action

brought as a part of the director's official duties. The director

shall not otherwise make the documents, materials, or other

information public without the prior written consent of the insurer

or insurance group. This section does not require written consent

of the insurer or insurance group before the director may share or

receive confidential documents, materials, or other CGAD-related

information under subsection (3) to assist in the performance of

the director's regular duties.

(2) The director or any person who received documents,

materials, or other CGAD-related information, through examination

or otherwise, while acting under the authority of the director, or

with whom the documents, materials, or other information are shared

under this act shall not testify in any private civil action

concerning any confidential documents, materials, or information

subject to subsection (1).

(3) The director may do any of the following:

(a) Except as otherwise provided in this subdivision, on

request, share documents, materials, or other CGAD-related

information, including the confidential and privileged documents,

materials, or information described in subsection (1), including

proprietary and trade secret documents and materials with other

state, federal, and international financial regulatory agencies,

including members of any supervisory college under chapter 13, with

the NAIC, and with third-party consultants retained by the director

under section 1763. The director shall not share documents,

materials, or other CGAD-related information unless 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 the legal authority to

maintain confidentiality.

(b) Except as otherwise provided in this subdivision, receive

documents, materials, or other CGAD-related information, including

otherwise confidential and privileged documents, materials, or

information, including proprietary and trade-secret information or

documents, from regulatory officials of other state, federal, and

international financial regulatory agencies, including members of

any supervisory college under chapter 13, and from the NAIC. The

director shall maintain as confidential or privileged any

documents, materials, 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.

(4) The sharing of information and documents by the director

under this chapter is not a delegation of regulatory authority or

rule-making, and the director is solely responsible for the

administration, execution, and enforcement of this chapter.

(5) The disclosure or sharing of documents, proprietary and

trade-secret materials, or other CGAD-related information to the

director under this chapter is not a waiver of an applicable

privilege or claim of confidentiality.

Sec. 1763. (1) The director may retain, at the insurer's or

insurance group's expense, third-party consultants, including

attorneys, actuaries, accountants, and other experts not otherwise

a part of the director's staff as may be reasonably necessary to

assist the director in reviewing the CGAD and related information

or the insurer's or insurance group's compliance with this chapter.

(2) A person retained under subsection (1) is under the

direction and control of the director and shall act in a purely

advisory capacity.

(3) The NAIC and third-party consultants are subject to the

same confidentiality standards and requirements as the director.

(4) As part of the retention process, a third-party consultant

shall verify to the director, with written notice to the insurer or

insurance group, that it is free of any conflict of interest and

that it has internal procedures in place to identify and monitor

compliance with any conflict that may arise after engagement and to

comply with the confidentiality standards and requirements of this

chapter.

(5) A written agreement with the NAIC or a third-party

consultant, or both, under subsection (4) governing sharing and use

of information provided under this chapter must contain all of the

following provisions and expressly require the written consent of

the insurer or insurance group before making public information

provided under this chapter:

(a) Specific procedures and protocols for maintaining the

confidentiality and security of CGAD-related information shared

with the NAIC or a third-party consultant under this chapter.

(b) Procedures and protocols for sharing by the NAIC only with

other state regulators from states in which the insurer or

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 the legal authority to maintain confidentiality.

information shared with the NAIC or a third-party consultant

remains with the department and the NAIC's or third-party

consultant's use of the information is subject to the direction of

the director with written notice to the insurer or insurance group.

(d) A provision that prohibits the NAIC or a third-party

consultant from storing the information shared under this chapter

in a permanent database after the underlying analysis is completed

and that requires the NAIC or third-party consultant to promptly

return or destroy all CGAD-related information provided by the

insurer or insurance group.

(e) A provision requiring the NAIC or third-party consultant

to provide prompt written notice to the director and to the insurer

or insurance group regarding any subpoena, request for disclosure,

or request for production of the insurer's CGAD-related

information.

(f) A requirement that the NAIC or a third-party consultant

consent to intervention by an insurer or insurance group 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 under this chapter.

Sec. 1765. (1) An insurer or insurance group that does not,

without just cause, timely file the CGAD as required in this

chapter, after written notice and hearing, shall pay a civil fine

of $1,000.00 for each day's delay, to be recovered by the director

and paid into the general fund of this state. The maximum civil

fine under this section is $75,000.00. The director may reduce or

waive the penalty if the insurer demonstrates to the director that

either of the following applies:

(a) The penalty would cause a financial hardship to the

insurer.

(b) There is just cause for the delayed filing.

(2) On written request, the director may grant a 90-day

extension for filing the CGAD.

Sec. 1767. If in a final decision a court holds section 1761

of this chapter to be invalid, that section is not severable, and

the entire chapter is void as of the date of the court decision.

Sec. 3032. In an action brought in a court in this state, the

court shall not apply a principle from the American Law Institute's

"Restatement of the Law, Liability Insurance" in ruling on an issue

in the case unless the principle is clearly expressed in a statute

of this state, the common law, or case law precedent of this state.

Enacting section 1. This amendatory act takes effect January

1, 2020.