AB 1460: Licensees: fiduciary funds.

Existing law requires that all funds received by any person acting as a licensed insurance producer, an administrator, a surplus line broker, or a bail licensee, as premium or return premium on or under any policy of insurance or undertaking of bail, are received and held by that person in his or her fiduciary capacity. Existing law requires a person who holds one of the above-described licenses who receives fiduciary funds to maintain those funds, as provided, including, but not limited to, maintaining those funds on California business, at all times in a trustee bank account or depository in California, separate from any other account or depository, in specified amounts.

This bill would delete the requirement that the funds be maintained in a trustee bank account or depository in California and would instead require the funds be maintained in a trust account in a bank or savings and loan association, within any state of the United States, which account is insured by the Federal Deposit Insurance Corporation (FDIC) and is licensed by any state government within the United States or by the United States government.

Existing law authorizes an above-described licensee to hold fiduciary funds in bonds, certificates, obligations, certificates of deposit, and repurchase agreements. Existing law requires a bank, as defined, or savings association, as defined, to maintain evidence of those fiduciary funds on California business, in a custodian or trust account in California, separate from any other funds, in specified amounts.

This bill, among other things, would delete the reference to the fiduciary funds being in a custodian or trust account in California and the definitions for a bank and a savings association and would require evidence of the funds to be maintained at all times in a trust account in a bank or savings and loan association within any state of the United States, which account is insured by the FDIC and is licensed by any state government within the United States or by the United States government, as specified. The bill would require all administrative actions involving trust accounts to be subject to the jurisdiction of the commissioner, and all suits involving trust accounts to be subject to the jurisdiction of the courts of this state and the federal courts located within the State of California. The bill would require the licensee, as a condition of maintaining its license, to file and maintain with the Insurance Commissioner a written designation of the agent for service of process in this state for the trust account located outside the State of California being utilized by the licensee. The bill would also require any licensee who receives fiduciary funds as cash to initially maintain those funds in a trust account in a bank or savings and loan association in California, licensed by the State of California or the United States government and insured by the FDIC.