the state treasury for the payment of the same to the insurance commissioner out of the said insurance commissioner's special fund; except that there shall be a revolving fund, or petty cash fund, of five hundred dollars which may be used by the commissioner without first obtaining the approval of any other department or official; provided, however, that such expenditures must ultimately be audited by the board of control and paid for as prescribed by law. [Amendment approved June 1, 1917; Stats. 1917, p. 1667.]

§ 596. Transaction of insurance business in state. Certificate not to be renewed if company is in arrears for taxes. Surplus line broker. No company shall transact any insurance business in this state without first complying with all the provisions of the laws of this state and thereafter procuring from the insurance commissioner a certificate of authority and continuing to comply with the laws of this state. Every such certificate of authority shall expire on the first day of July after its issuance unless sooner revoked. No certificate of authority shall be granted or renewed to any company in arrears to the state, or to any county, city and county, city or town in the state, for fees, licenses, taxes, assessments, fines, or penalties, accrued on business previously transacted in the state, nor while said company is otherwise in default for failure to comply with any of the laws of this state regarding the governmental control of such company by the state.

No person, firm or corporation shall in this state act as agent, in any transaction of insurance on property located in this state, for any insurance company not authorized to transact such insurance in this state.

No person, firm or corporation within this state shall solicit, negotiate or effect any insurance of the kinds described in section five hundred ninety-four, marine insurance and insurance on the property of steam railroads or of other common carriers engaged in interstate trade excepted, on any property located in this state with companies not authorized to transact such business in this state, except by and through a surplus line broker upon the terms and conditions hereinafter stated.

When and only when the total amount of insurance, of kinds hereinbefore prohibited from being placed with unauthorized companies, desired on any property located within the state can not be procured from a majority of companies authorized to transact such kinds of insurance within the state, such remaining part of the insurance as can not be procured from a majority of such authorized companies may be procured from unauthorized companies by a surplus line broker, and by no other person.

License for surplus line broker. The insurance commissioner may issue a license authorizing any person, firm or corporation applying therefor, who is trustworthy and is competent to transact an insurance brokerage business in such manner as to safeguard the interest of the assured, to act as a surplus line broker from the date of such license until the first day of July succeeding, on the following conditions: (a) Payment in advance to the insurance commissioner of a fee of twenty-five dollars.

(b) Delivery to the insurance commissioner of a bond to the state of California in the sum of five thousand dollars with sureties having

the qualifications mentioned in section one thousand fifty-six and one thousand fifty-seven of the Code of Civil Procedure, conditioned that said licensee will fully and faithfully comply with the requirements of section five hundred ninety-six of the Political Code.

Duties of surplus line broker. The following are the duties of a surplus line broker with which he is required to comply:

1. To maintain in good faith an office in this state.

2. To keep in said office a complete book of record of the business transacted by him, under his license as a surplus line broker, with unauthorized companies showing: The dates of such insurance going into effect; the names of the insurers and of the insured; the gross premium payable therefor; the terms and character of insurance and location of the insured property. Such book of record shall also contain statements in the same detail of all such insurance canceled, or on which premiums have been increased or reduced and the amounts of additional or of return premiums thereon. Such books are to be open at all times for the inspection of, and examination by, the insurance commissioner or any one appointed by him for said purpose.

Before any insurance as herein before provided may be so procured or placed by a surplus line broker under authority of his license with unauthorized companies, such broker shall satisfy himself that the insurance to be placed by him with unauthorized companies is only such part of the insurance required as cannot be procured from a majority of such authorized companies.

Whenever required so to do by the insurance commissioner, such surplus line broker shall furnish to said commissioner a list comprising a majority of the authorized companies from which the entire amount of insurance desired was not obtainable.

The surplus line broker shall within one week or as soon thereafter as practicable, after receipt by him of the complete information as to with what companies or other insurers and at what rate the insurance has been placed, file with the insurance commissioner a true report showing the names of the insured and of the insurers, the character of the insurance, location of the property, gross premium payable therefor and the date such insurance takes effect and the terms thereof. As soon as practicable after any such insurance has been canceled, or any premium thereon has been increased or reduced, such surplus line broker shall file with the insurance commissioner a report thereof in the same detail as required in the case of the report above referred to.

On or before the first day of March of each year the surplus line broker shall file with the insurance commissioner a sworn statement of all business transacted under his license during the last preceding calendar year ending December thirty-first. Such statement shall contain true accounts of the gross amount of insurance procured from and placed with unauthorized companies during the calendar year, the gross premium charged therefor, including additional insurance premiums, the gross amount of all insurance canceled during said year, and the gross return premiums thereon. Such statement shall also include any additional premiums charged, and the gross premium returned during said calendar year on insurance previously effected. All such reports and statements

shall be made on blanks to be furnished to the surplus line broker by the insurance commissioner on application therefor.

Every surplus line broker shall on or before the first day of April of each year pay to the insurance commissioner for the use of the state of California a tax of three per cent upon the amount of gross premiums upon all insurance placed under authority of such license, less three per cent of all return premiums on policies canceled, or upon which premiums have been reduced during the year ending December thirty-first last preceding.

Any surplus line broker who willfully fails or refuses to report to the insurance commissioner any insurance on property located within this state placed under his name with unauthorized companies, or who shall by willful omission from the records required to be maintained by him for such purpose, attempt to evade the payment of taxes on any such insurance, shall upon conviction thereof in addition to being required to pay the tax thereon, be further penalized by a fine of not exceeding one hundred dollars for each offense and the insurance commissioner shall further forthwith revoke the license of any such surplus line broker. The insurance commissioner shall also revoke the license of any surplus line broker who willfully fails or refuses to perform any of the other duties herein before specified as required of said broker.

Revoking license. Examination of policies, etc., by insurance commissioner. If in the opinion of the insurance commissioner the solvency of any surety on a bond hereby required has become impaired or doubtful, he shall notify the surplus line broker in writing, and unless within ten days after receipt of such notice the solvency of such surety is proved to the satisfaction of the insurance commissioner, or a new bond is substituted therefor, said insurance commissioner shall revoke the license of the surplus line broker. The removal of the office of the surplus line broker from this state, or the removal therefrom of his accounts of his business as such, or the closing of his said office for a period of more than twenty consecutive days, shall constitute a termination of the authority of said surplus line broker, and shall be tantamount to an express revocation of his license, whether or not the insurance commissioner thereafter revokes the same. No new license shall be issued to any surplus line broker whose license has been revoked for any reason other than the insufficiency of his sureties, within the period of one year after such revocation, and until all indebtedness of said surplus line broker on former business has been paid to said insurance commissioner. Every insured for whom insurance has been effected with unauthorized companies shall produce for examination by the insurance commissioner, whenever requested by him, in writing so to do, all policies, contracts, and other documents evidencing such insurance and disclose to him the true amount of the gross premiums paid or agreed to be paid therefor, or upon refusal so to do, he shall forfeit to the state of California the sum of two hundred dollars for each refusal. Nothing in this section shall be construed to deprive any citizen of this state of the right to negotiate and effect insurance on his own property with any unauthorized company. Nothing in this section shall be construed to permit any broker to solicit or place marine insurance or insurance on property of railroads or other common carriers engaged in interstate

trade with nonadmitted insurers until three-quarters of the companies duly authorized to transact such class of insurance in this state shall have first been given a refusal of such insurance at equal rates and same conditions as may be bona fide obtainable from insurance companies admitted to do the same character of insurance under the laws of the state of New York. [Amendment approved April 20, 1917; Stats. 1917, p. 147.]

Repealed. Section four hundred thirty-nine of the Penal Code, in so far as it is inconsistent with the provisions hereof, is hereby repealed. [Repealed by act approved April 20, 1917; Stats. 1917, p. 147.]

§ 597. Examination of insurance companies. Company organized in other state. Access to books. Inspection of books. State compensation insurance fund. The commissioner, whenever he deems necessary, or whenever he is requested by verified petition, signed by twenty-five persons interested, either as stockholders, policy-holders, or creditors of any company engaged in insurance business in this state, showing that such company is insolvent under the laws of this state, must make an examination of the business and affairs relating to the insurance business of such company, and must make such an examination whenever any company is organized to do insurance business in this state, and before issuing a certificate of authority other than renewals to such company; provided, the insurance commissioner shall have no authority to issue, and no certificate of authority shall be issued, to any insurance company or corporation hereafter organized or incorporated in this state, whether the same be organized and promoted directly or by means of a holding company or corporation, one of the purposes of which is the organization and promotion of such insurance company or corporation, where such examination shows the expense of organization and promotion to be in excess of fifteen per cent of the total amount actually paid on its capital stock exclusive of surplus.

Whenever any company, not organized under the laws of this state, applies for a certificate of authority to do business in this state, the insurance commissioner may make, or cause to be made, by the insurance department of the state where such company is organized, an examination of the business and affairs relating to the insurance business of such company. The company organized or existing under the laws of any country outside of the United States, shall be deemed to be organized within the meaning of this act in any state wherein such company maintains the deposits required by the laws of this state. For the purpose of making such examination the insurance commissioner shall have free access to all the books and papers of such company, and must thoroughly inspect and examine all its affairs, and ascertain its condition and ability to fulfill its engagements, and that it has complied with all the provisions of law applicable to its insurance transactions.

Every company examined under the provisions of this section must open its books and papers for the inspection of the commissioner, and otherwise facilitate such examination; and the commissioner may administer oaths and examine under oath any person relative to the business of such company; and if he finds the books to be carelessly or

improperly kept or posted, he must employ sworn experts to rewrite, post, and balance the same at the expense of such company. Such examination must be conducted in the county where such company has its principal office, and must be private, unless the commissioner deems it necessary to publish the result of such investigation, in which case he may publish the same in two of the public newspapers of this state, one of which must be published in the city of San Francisco and the other in the city of Los Angeles. All examinations must be at the expense of the company, such expense to be paid in advance, and, if any such company refuses to pay such expenses in advance, the insurance commissioner may refuse to issue any such certificate of authority and must revoke any existing certificate of authority authorizing such company to do business. The insurance commissioner shall have the same powers and authority to make examination of the state compensation insurance fund as are conferred upon him by law relative to the examination of other insurance carriers. [Amendment approved May 29, 1917; Stats. 1917, p. 1320.]

§ 602a. Liabilities of insurance companies. Computation of reserve. In estimating the condition of any insurance corporation, mutual company, association, the state compensation insurance fund, interinsurance exchange or other insurance carriers engaged in the business of liability insurance and licensed to transact business in this state, the insurance commissioner shall charge as liabilities, all outstanding indebtedness of such carrier, and the premium reserve on policies in force, equal to the unearned portions of the gross premiums charged for covering the risks, computed on each respective risk from the date of the issuance of the policy.

The reserve for outstanding losses under insurance against loss or damage from accident to or injuries suffered by an employee or other person and for which the insured is liable shall be computed as follows:

(1) Liability suits. For all liability suits being defended under policies written more than

(a) Ten years prior to the date as of which the statement is made, one thousand five hundred dollars for each suit.

(b) Five and less than ten years prior to the date as of which the statement is made, one thousand dollars for each suit.

(c) Three and less than five years prior to the date as of which the statement is made, eight hundred fifty dollars for each suit.

(2) Liability policies. For all liability policies written during the three years immediately preceding the date as of which the statement is made, such reserve shall be sixty per centum of the earned liability premiums of each of such three years less all loss and loss expense payments made under the liability policies written in the corresponding years; but in any event, such reserve shall, for the first of such three years, be not less than seven hundred fifty dollars for each outstanding liability suit on said year's policies.

(3) Claims under policies written three years prior. For all compensation claims under policies written more than three years prior to the date as of which the statement is made, the present values at four per centum interest of the determined and the estimated future payments.