CORRECTED COPY
LRB-2242/2
PJK&TJD:kjf:jf
2011 - 2012 LEGISLATURE
January 12, 2012 - Introduced by Senator Lasee, cosponsored by Representative
Petersen. Referred to Committee on Insurance and Housing.
SB378,1,11 1An Act to repeal subchapter III (title) of chapter 618 [precedes 618.39] and
2618.43 (1) (b); to renumber and amend 646.31 (4) (a); to amend 618.41 (6m),
3618.41 (8) (a) (intro.), 618.41 (8) (c), 618.41 (9) (a), 618.43 (1) (a) (intro.), 618.43
4(1) (a) 3., 618.43 (1) (d), 618.43 (6), 628.03 (1), 628.05 (1), 628.34 (1) (a), 631.01
5(4m), 631.20 (1) (a), 631.20 (1) (c) 9., 631.20 (1m) (a) (intro.), 631.85, 632.32 (2)
6(ac), 632.32 (4) (a) (intro.), 632.32 (4) (bc), 632.32 (4) (d), 632.32 (4m) (a), 632.32
7(4m) (e), 646.01 (2) (b), 646.31 (1) (intro.), 646.35 (1) (b) and 646.35 (6) (b); and
8to create subchapter III (title) of chapter 618 [precedes 618.40], 618.40, 618.41
9(12), 618.416, 618.43 (1) (bc), 631.20 (7), 632.32 (2) (ab), 646.03 (4m) and 646.31
10(4) (ag) of the statutes; relating to: surplus lines insurance, insurance security
11fund, automobile insurance, and granting rule-making authority.
Analysis by the Legislative Reference Bureau
Surplus lines insurance
This bill makes a few changes related to surplus lines insurance, which is
defined in the bill as insurance that is permitted to be placed through an agent or

broker with an insurer that is not authorized to do an insurance business in this state
and that covers an insured for which this state is the home state, which is defined
in the bill as: 1) the state in which the insured maintains its principal place of
business; 2) the insured's principal residence if the insured is an individual; or 3) if
100 percent of the insured risk is outside this state, the state to which the greatest
percentage of the insured's taxable premium for the insurance is allocated.
Current law contains some limitations on and requirements for the placement
of insurance with, and the direct procurement of insurance from, an insurer that is
not authorized to do an insurance business in this state. The bill specifies that
certain of these requirements do not apply if this state is not the insured's home state
and the placement complies with the laws of the insured's home state. The bill also
specifies that an intermediary may not place surplus lines insurance with an insurer
that is not authorized to do an insurance business in this state unless certain criteria
are satisfied. If the insurer is domiciled in another United States jurisdiction, the
insurer must be authorized to write the type of insurance in its domiciliary
jurisdiction that the intermediary is placing, the insurer must have a specified level
of capital and surplus or the commissioner of insurance (commissioner) must find the
insurer's capital and surplus acceptable, and the insurer must provide to the
commissioner a certified copy of its current annual statement that is filed and
approved by the regulatory authority in the insurer's domicile. If the insurer is
domiciled outside the United States, the insurer must be on the list maintained by
the international insurers department of the National Association of Insurance
Commissioners and must meet any additional requirements regarding the use of the
list established by the commissioner by rule.
Under current law, the policyholder of surplus lines insurance generally must
pay a 3 percent tax on gross premium. If a policy covers risks in more than one state
including this state, the tax payable to this state is computed on the premium
allocated to this state for the portion of the risk located in this state. Under the bill,
that computation applies only for policies issued or renewed before July 21, 2011.
For policies issued or renewed on or after that date, the tax is payable to this state
only if this state is the home state of the insured, and it is computed on the entire
premium, including premium attributable to risks outside of this state.
The bill specifies that the licensing requirements for intermediaries in this
state do not apply to a person who solely procures insurance that may be placed
directly or through a broker with an insurer that is not authorized to do an insurance
business in this state and that is not surplus lines insurance; that the requirements
related to filing insurance forms with the commissioner for approval do not apply to
a surplus lines insurance form, except for a form for rustproofing warranty
insurance; and that the provision relating to insurance policies containing provisions
for independent appraisal and compulsory arbitration, subject to the requirements
for form filing and approval, does not apply to surplus lines insurance.
Auto insurance
Under current law, the auto insurance provisions relating to required coverage
and minimum limits apply to all liability insurance policies that insure with respect
to any owned motor vehicle registered or principally garaged in this state. The bill

eliminates the condition that the requirements apply only if an owned motor vehicle
is insured so that, unless a specific exemption applies, the coverage and minimum
limit requirements apply to any policy that insures with respect to any motor vehicle.
The bill makes a few modifications to the auto insurance provisions that, under
Act 14, go into effect on November 1, 2011. Act 14 provided a definition for a
"commercial liability policy" as a policy that provides coverage for the insured's
general liability arising out of business or commercial activities and that includes as
one component coverage for the insured's liability arising out of the ownership,
maintenance, or use of a motor vehicle. Under Act 14, commercial liability policies
are not subject to the requirement for motor vehicle insurance policies that they must
include uninsured motorist coverage and medical payments coverage, unless the
insured rejects medical payments coverage, or the requirement that an insurer must
notify the insured of the availability of underinsured motorist coverage. The bill does
all of the following:
1. Specifies that a commercial liability policy is not subject to these
requirements if the coverage provided under the policy for the insured's liability
arising out of the maintenance or use of a motor vehicle is limited to nonowned motor
vehicles.
2. Provides that if a policy that is exempt from the requirements does, however,
provide uninsured or underinsured motorist coverage or medical payments
coverage, that coverage must have at least the limits that are required under the
statutes for those coverages. (For uninsured motorist coverage, the minimum limits
are $25,000 per person and $50,000 per accident; for underinsured motorist
coverage, the minimum limits are $50,000 per person and $100,000 per accident; and
for medical payments coverage, the minimum limit is $1,000 per person.)
3. Excludes commercial automobile liability policies from the definition of
commercial liability policies so that commercial automobile liability policies are
subject to the same requirements as motor vehicle insurance policies and defines a
"commercial automobile liability policy" as a policy that is intended principally to
provide primary coverage for the insured's liability arising out of the ownership,
maintenance, or use of a motor vehicle in the insured's business or other commercial
activities.
4. Clarifies that only one named insured is required to reject medical payments
coverage for the rejection to be effective.
Insurance security fund
Under current law, the state maintains an insurance security fund to protect
insured parties from excessive delay and loss in the event an insurer is liquidated
and to provide for the continuation of protection under certain policies and contracts
in the event of a liquidation of an insurer. Insurers, with some exceptions, are
required to contribute moneys to the insurance security fund. Current law also
specifies that, with some exceptions, the maximum obligation of the insurance
security fund on any single risk, loss, or life is $300,000.
In addition to making other changes to the insurance security fund, this bill
specifies that retained asset accounts are covered by the insurance security fund. A
retained asset account is any mechanism in which the settlement of proceeds payable

under a life insurance policy is accomplished by the insurer or an entity acting on
behalf of the insurer depositing the proceeds into an account with check or draft
writing privileges, where those proceeds are retained by the insurer under a written
supplementary contract not involving annuity benefits. The bill specifies that a
retained asset account is a type of supplementary contract for which an insured may
make a claim for payment against the fund. The bill also specifies that retained asset
accounts are eligible for continuation protections as are certain other policies and
contracts. The bill defines, for the purposes of the maximum fund obligation,
"disability insurance" as comprehensive health insurance and major medical health
insurance. The bill clarifies that the maximum obligation applies regardless of the
number of policies or contracts. The bill also sets the maximum aggregate liability
of the fund for a single risk, loss, or life with respect to benefits for property
insurance, liability insurance, and disability insurance at $500,000, while the
maximum for other insurance policy or contract types remains at $300,000.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB378, s. 1 1Section 1. Subchapter III (title) of chapter 618 [precedes 618.39] of the
2statutes is repealed.
SB378, s. 2 3Section 2. Subchapter III (title) of chapter 618 [precedes 618.40] of the
4statutes is created to read:
SB378,4,55 chapter 618
SB378,4,66 Subchapter III
SB378,4,77 Permissible business by
SB378,4,88 unauthorized insurers
SB378, s. 3 9Section 3. 618.40 of the statutes is created to read:
SB378,4,10 10618.40 Definitions. In this subchapter, unless the context requires otherwise:
SB378,4,12 11(1) "Affiliated group" means all persons that control, are controlled by, or are
12under common control with, an insured.
SB378,5,2
1(2) "Authorized insurer" means an insurer that is licensed, or authorized, to
2transact the business of insurance under the law of the home state.
SB378,5,4 3(3) "Control" means, with respect to a person having control over another
4person, that the person does any of the following:
SB378,5,75 (a) Directly or indirectly, or acting through one or more other persons, owns,
6controls, or has the power to vote 25 percent or more of any class of voting securities
7of a person.
SB378,5,98 (b) Controls in any manner the election of a majority of the directors or trustees
9of a person.
SB378,5,11 10(4) (a) Except as provided in par. (b), "home state" means, with respect to an
11insured, one of the following:
SB378,5,1312 1. The state in which the insured maintains its principal place of business or,
13in the case of an insured who is an individual, the individual's principal residence.
SB378,5,1614 2. If 100 percent of the insured risk is located outside of the state referred to
15in subd. 1., the state to which the greatest percentage of the insured's taxable
16premium for that insurance contract is allocated.
SB378,5,2017 (b) If more than one insured from an affiliated group are named insureds on
18a single surplus lines insurance contract, "home state" means the state, as
19determined under par. (a), of the member of the affiliated group that has the largest
20percentage of premium attributed to it under the insurance contract.
SB378,5,25 21(5) "Premium tax" means, with respect to unauthorized insurance, any tax, fee,
22assessment, or other charge imposed by this state directly or indirectly based on any
23payment made as consideration for an insurance contract for such insurance,
24including premium deposits, assessments, registration fees, and any other
25compensation given in consideration for a contract of insurance.
SB378,6,4
1(6) "Principal place of business" means, with respect to determining the home
2state of an insured, the state where the insured maintains its headquarters and
3where the insured's high-level officers direct, control, and coordinate the business
4activities of the insured.
SB378,6,7 5(7) "Principal residence" means, with respect to determining the home state of
6an insured who is an individual, the state where the individual resides for the
7greatest number of days during a calendar year.
SB378,6,10 8(8) "State" includes any state of the United States, the District of Columbia,
9the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin
10Islands, and American Samoa.
SB378,6,13 11(9) "Surplus lines broker" means a person that is licensed in a state to sell,
12solicit, or negotiate insurance on properties, risks, or exposures located or to be
13performed in that state with unauthorized insurers.
SB378,6,15 14(10) "Surplus lines insurance" means any insurance to which all of the
15following apply:
SB378,6,1616 (a) This state is the home state of the insured.
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