Senate Bill No. 380
(By Senator Minard)
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[Introduced January 30, 2007; referred to the Committee on
Banking and Insurance; and then to the Committee on the
Judiciary.]
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A BILL to amend and reenact §33-33-2 and §33-33-6 of the Code of
West Virginia, 1931, as amended, all relating to persons
performing financial examinations of insurers; defining term;
prohibiting use of indemnification agreements by accountants
performing certain audits; and permitting mediation or
arbitration agreements in certain circumstances.
Be it enacted by the Legislature of West Virginia:
That §33-33-2 and §33-33-6 of the Code of West Virginia, 1931,
as amended, be amended and reenacted, all to read as follows:
ARTICLE 33. ANNUAL AUDITED FINANCIAL REPORT.
§33-33-2. Definitions.
(a) "Accountant" and "independent certified public accountant"
means an independent certified public accountant or accounting firm
in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant is licensed
to practice; for Canadian and British companies, the terms mean a
Canadian-chartered or British-chartered accountant.
(b) "Annual statement" means the annual financial statement
required to be filed by insurers with the commissioner pursuant to
the provisions of this chapter.
(c) "Audited financial report" means and includes those items
specified in section four of this article.
(d)
"Indemnification" means an agreement of indemnity or a
release from liability where the intent or effect is to shift or
limit in any manner the potential liability of the person or firm
for failure to adhere to applicable auditing or professional
standards, whether or not resulting in part from knowing of other
misrepresentations made by the insurer or its representatives.
(d) (e) "Insurer" for purposes of this article means any
domestic insurer as defined in section six, article one of this
chapter and includes any domestic stock insurance company, mutual
insurance company, reciprocal insurance company, farmers' mutual
fire insurance company, fraternal benefit society, hospital service
corporation, medical service corporation, health care corporation,
health maintenance organization, captive insurance company or risk
retention group and any licensed foreign or alien insurer.
defined
in article one of this chapter
(e) (f) "Workpapers" means and includes audit planning documentation, work programs, analyses, memoranda, letters of
confirmation and representation, abstracts of company documents and
schedules or commentaries prepared or obtained by the independent
certified public accountant in the course of the examination of the
financial statements of an insurer and which support the opinion
thereon.
§33-33-6. Qualifications of independent certified public
accountants.
(a) The commissioner
shall may not recognize any person or
firm as a qualified independent certified public accountant
that is
if the person or firm:
(1) Is not in good standing with the American Institute of
Certified Public Accountants and in all states in which the
accountant is licensed to practice, or, for a Canadian or British
company, that is not a chartered accountant;
or
(2) Has either directly or indirectly entered into an
agreement of indemnity or release from liability (collectively
referred to as indemnification) with respect to the audit of the
insurer.
(b) Except as otherwise provided herein,
the commissioner
shall recognize an independent certified public accountant
shall be
recognized as qualified as long as he or she conforms to the
standards of his or her profession, as contained in the Code of
Professional Ethics of the American Institute of Certified Public Accountants and the Rules
and Regulations and Code of Ethics and
Rules of Professional Conduct of the West Virginia Board of
Accountancy.
(c)
A qualified independent certified public accountant may
enter into an agreement with an insurer to have disputes relating
to an audit resolved by mediation or arbitration. However, in the
event of a delinquency proceeding commenced against the insurer
under article ten of this chapter, the mediation or arbitration
provisions shall operate at the option of the statutory successor.
(c) (d) No partner or other person responsible for rendering
a report may act in that capacity for more than seven consecutive
years. Following
any a period of service the person shall be
disqualified from acting in that or a similar capacity for the same
company or its insurance subsidiaries or affiliates for a period of
two years. An insurer may make application to the commissioner for
relief from the above rotation requirement on the basis of unusual
circumstances. The commissioner may consider the following factors
in determining if the relief should be granted:
(1) Number of partners, expertise of the partners or the
number of insurance clients in the currently registered firm;
(2) Premium volume of the insurer; or
(3) Number of jurisdictions in which the insurer transacts
business.
Provided, That the requirements of this subsection shall
become effective two years after the enactment of this article
(d) (e) The commissioner
shall may not recognize as a
qualified independent certified public accountant, nor accept any
annual audited financial report, prepared in whole or in part by,
any natural person who:
(1) Has been convicted of fraud, bribery, a violation of the
Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
Sections 1961-1968, or any dishonest conduct or practices under
federal or state law;
(2) Has been found to have violated the insurance laws of this
state with respect to any previous reports submitted under this
article; or
(3) Has demonstrated a pattern or practice of failing to
detect or disclose material information in previous reports filed
under the provisions of this article.
(e) (f) The commissioner may hold a hearing to determine
whether a certified public accountant is qualified and considering
the evidence presented, may rule that the accountant is not
qualified for purposes of expressing an opinion on the financial
statements in the audited financial report made pursuant to this
article and require the insurer to replace the accountant with
another whose relationship with the insurer is qualified within the
meaning of this article.
NOTE: The purpose of this bill is to incorporate recent
changes adopted by the National Association of Insurance Commissioners to this model act that prohibits indemnification
agreements between insurers and certified public accountants used
to perform audited financial examinations.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
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