Administrative Rules of the State of Montana

BEFORE THE COMMISSIONER OF SECURITIES AND INSURANCE

MONTANA STATE AUDITOR

In the matter of the adoption of New Rules I through XI, pertaining to Surety Insurance Producers Who Sell, Solicit, or Negotiate Commercial Bail Bonds

)

)

)

)

NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION

TO: All Concerned Persons

1. On November 18, 2015, at 10:00 a.m., the Commissioner of Securities and Insurance, Montana State Auditor, will hold a public hearing in the basement floor conference room, at the Office of the Commissioner of Securities and Insurance, Montana State Auditor (CSI), 840 Helena Ave., Helena, Montana, to consider the proposed adoption of the above-stated rules.

2. The CSI will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing, or need an alternative accessible format of this notice. If you require an accommodation, contact the CSI no later than 5:00 p.m., November 12, 2015, to advise us of the nature of the accommodation that you need. Please contact Darla Sautter, CSI, 840 Helena Avenue, Helena, Montana, 59601; telephone (406) 444-2726; TDD (406) 444-3246; fax (406) 444-3499; or e-mail [email protected].

3. The new rules as proposed to be adopted provide as follows:

NEW RULE I DEFINITIONS For the purposes of this subchapter, the following terms have the following meanings:

(1) "Bail bond agency" means a surety bail insurance producer agency which may be a corporation, limited liability company, partnership, limited partnership, limited liability partnership, or other legal entity formed by an organizational document which is owned by, employs, or contracts with one or more individual bail bond agents.

(2) "Bail bond agent" means a surety bail insurance producer who sells, solicits, or negotiates commercial bail bonds.

(3) "Commercial bail bond surety insurer" means a surety insurer who sells, solicits, or negotiates commercial bail bonds.

(4) "Indemnitor" is a person who, by agreement with a bail bond agent, accepts liability for loss of the bail bond agent in the event that a principal fails to perform according to the standards agreed upon between the principal and the bail bond agent.

(5) "On the board" means the name of a bail bond agent that has been publicly posted, or disseminated by a court, as being ineligible to write bail bonds within the court's jurisdiction.

(6) "Principal" is a defendant or a witness who has been admitted to bail and who is obligated to appear in court as required upon penalty of forfeiting bail under a commercial bail bond.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-26-108, MCA

NEW RULE II FINANCIAL RESPONSIBILITY REQUIREMENTS -- CLAIMS AGAINST BONDS (1) Each bail bond agent shall purchase and maintain a surety bond in the amount of $25,000 issued by a surety company authorized to do business in this state.

(2) A surety on a bail bond agent's bond referred to in (1) may not cancel the bond without giving at least 21 days written notice of cancellation to the bail bond agent and the commissioner. If the commissioner receives notice of a surety's intention to cancel a bail bond agent's bond, the commissioner shall notify the affected bail bond agent that unless the bail bond agent files another $25,000 surety bond with the commissioner, the bail bond agent may no longer transact insurance as a bail bond agent in this state.

(3) The surety bond required by this rule must be issued on the form found in Appendix A of [New Rule XI], and must be established in favor of a person, and the commissioner on behalf of a person injured as a result of a violation of the Montana Insurance Code, or an administrative rule promulgated thereunder. The surety bond must cover any restitution or fine ordered by the commissioner.

(4) Each bail bond agent licensed in this state as of the effective date of this rule shall file with the commissioner a copy of a surety bond, together with a power of attorney, on a form supplied by the surety company within 90 days of the effective date of this rule. Each bail bond agent who becomes licensed after the effective date of this rule shall file with the commissioner a copy of a surety bond purchased pursuant to (1), together with a power of attorney on a form supplied by the surety company within 45 days prior to commencing business in this state.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-1001, 33-26-108, MCA

NEW RULE III NOTICE OF BANKRUPTCY OR RECEIVERSHIP (1) Upon the filing for protection under the United States Bankruptcy Code, or any state receivership law, by any bail bond agent or bail bond agency licensed under Title 33, chapter 17, MCA, the bail bond agent or bail bond agency shall, in writing, notify the commissioner of the filing within three business days of the filing. Failure to give such notice may be deemed a violation of 33-17-1001, MCA.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-1001, 33-26-108, MCA

NEW RULE IV DEATH, INCAPACITATION, OR INCOMPETENCE OF A BAIL BOND AGENT (1) In the case of death, incapacitation, or incompetence of a bail bond agent the commercial bail bond surety insurer who has made, guaranteed, or become a surety upon commercial bail bonds issued by the deceased, incapacitated, or incompetent bail bond agent may contract with another licensed and appointed bail bond agent to perform the duties required to have the deceased, incapacitated, or incompetent bail bond agent's outstanding bail bond obligations resolved to the satisfaction of the courts.

(2) A copy of the contract must be filed with the commissioner and every clerk of court where the deceased, incapacitated, or incompetent bail bond agent has outstanding bail bond obligations. The bail bond agent who has agreed to assume these obligations shall not, at the time of the execution of the contract, have any pending administrative or criminal actions.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-201, 33-17-1001, 33-26-108, MCA

NEW RULE V SALE OR TRANSFER OF BUSINESS BY BAIL BOND AGENT (1) A bail bond agent may contract to transfer or assign the bail bond agent's business to another licensed and appointed bail bond agent, bail bond agency, or commercial bail surety insurer.

(2) The bail bond agent transferring or assigning his or her business shall file with the commissioner a copy of the contract and an affidavit containing a list of the transferring bail bond agent's outstanding bail bond obligations. The affidavit must identify the name of the principal, the case docket number, and the name of the bail bond agent, bail bond agency, or commercial surety insurer to whom business is transferred.

(3) A bail bond agent or bail bond agency to whom business is transferred must be appointed by each commercial bail bond surety insurer who has made, guaranteed, or become a surety upon all commercial bail bonds affected by the sale or transfer.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-201, 33-17-236, 33-26-108, MCA

NEW RULE VI BOND INSTRUMENTS NOT TO BE SIGNED IN BLANK

(1) A bail bond agent may not sign or countersign bail bonds in blank. A bail bond agent may not give power of attorney to, or otherwise authorize, anyone to countersign the bail bond agent's signature to bonds.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-201, 33-26-108, MCA

NEW RULE VII COLLATERAL, TRUST ACCOUNTS, RECORDS OF ARREST AND SURRENDER, LIST OF FORFEITURES, COSTS (1) The collateral security required by a bail bond agent must be commercially reasonable in relation to the amount of the bond. The value of any collateral security received by a bail bond agent must not exceed two-and-one-half times the amount of the bond unless no other collateral is available.

(2) A bail bond agent who accepts collateral shall give a written receipt for the collateral. The receipt must give a detailed description of the collateral received.

(3) Collateral security must be held and maintained in trust. When collateral security is received in the form of cash, check, or other negotiable instrument, the bail bond agent shall deposit the cash or instrument, within five banking days after receipt, in a trust account in a bank insured by the Federal Deposit Insurance Corporation. The trust account may not contain operating or personal funds.

(4) Each bail bond agent shall keep records identifying all collateral received, the source of funds placed into all trust accounts, and the terms of all commercial bail bond transactions. The records are open to inspection without notice by the commissioner.

(5) If the court exonerates a bail bond, the bail bond agent shall return all collateral or other security to the person entitled to it within five business days after receipt of written notification of exoneration. All collateral or security must be returned in the condition it was received, and at the location it was received, unless it is not reasonably practical to return the collateral or security at the location it was received or the parties mutually consent to another location.

(6) Each bail bond agent shall maintain and update on a continual basis:

(a) a list of forfeitures, which must include the names of the principal and indemnitor, the case name and number, the date of the forfeiture; and

(b) a list of arrests and surrenders, which must include the names of the principal and indemnitor, the case name and number, and the date of the failure of the principal to appear.

(7) A bail bond agent may bill for actual costs. A bail bond agent shall keep receipts for actual costs for a period of three years.

(8) If collateral is liquidated it must be done according to commercially reasonable standards and the balance, if any, must be returned to the principal or indemnitor as appropriate within ten business days of liquidation.

(9) All additional costs and fees must be commercially reasonable.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-1001, 33-26-108, MCA

NEW RULE VIII PROHIBITED PRACTICES (1) A bail bond agent may not:

(a) pay a fee or rebate, or give or promise anything of value, directly or indirectly to any public official, employee, or agent who has power to arrest or hold in custody in order to secure a settlement, compromise, remission, or reduction of the amount of any bail bond, or the forfeiture thereof;

(b) pay a fee or rebate, or give, or promise anything of value to the principal or anyone on his or her behalf;

(c) participate in the capacity of an attorney at a trial or hearing of a person on whose bond the bail bond agent is a surety;

(d) personally solicit business, or loiter in, or on the premises of, any court in Montana, in the office of any judge or justice of the peace, or in or about, any prisoner confinement facility; except that a bail bond agent may post court or prisoner confinement facility approved advertising material as permitted;

(e) advise or assist the principal for the purpose of forfeiting bond;

(f) impersonate a law enforcement officer;

(g) falsely represent that the bail bond agent is in any way connected with an agency of the federal, state, or local government;

(h) continue to execute bail bonds in any court in a judicial district where a bail bond agent is on the board;

(i) fail to report, preserve without use, retain separately, or return after payment in full, collateral taken as security on any bail bond to the party entitled to the collateral;

(j) arrest and surrender a principal unless the principal has failed to appear, and the court has issued an order of forfeiture during the pendency of forfeiture proceedings;

(k) fail to return collateral within five business days of receiving written notice of exoneration;

(l) fail to purchase and maintain the surety bond required by [New Rule II];

(m) gain access to a prospective principal in a prisoner confinement facility for the purpose of solicitation by misrepresenting to facility officials that the prospective principal or someone on the prospective principal's behalf had so requested; or

(n) sell, solicit, or negotiate surety bail insurance while employed as an investigator with the Office of the Public Defender.

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-1001, 33-17-1103, 33-18-210, 33-18-212, 33-26-108, 46-9-401, 46-9-402, 46-9-502, 46-9-503, 46-9-505, 46-9-510, 46-9-511, 46-9-512, MCA

NEW RULE IX PORTION OF BOND PREMIUM PAYMENTS DEFERRED (1) If an agreement between the principal and bail bond agent calls for some portion of the bond premium payments to be deferred or paid after the principal is released from custody, the bail bond agent shall keep the agreement on file and provide a copy to the principal and indemnitor, if applicable. The agreement must contain the following information:

(a) the amount of the premium payment deferred, or not yet paid, at the time the principal is released from custody;

(b) the method and schedule of payment to be made by the principal or indemnitor to the bail bond agent, including the dates of payment and amount to be paid on each date; and

(2) For the agreement to be enforceable, interest and finance charges on any unpaid premium must comply with 31-1-107, MCA.

AUTH: 33-26-108, MCA

IMP: 31-1-107, 33-18-213, 33-26-108, 46-9-403, MCA

NEW RULE X BAIL BOND DOCUMENTS (1) The following requirements apply to documentation a bail bond agent uses in connection with transacting business:

(a) an indemnity agreement must:

(i) be in writing;

(ii) be signed by the principal;

(iii) be signed by the indemnitor, if any;

(iv) be signed by the bail bond agent;

(v) set forth the amount of bail, the name of the principal, the amount and type of collateral held by the bail bond agent, and the conditions under which the collateral is to be returned;

(vi) state that the principal and the indemnitor have received copies of signed and dated disclosure forms referred to in (1)(e); and

(vii) if the principal or indemnitor is illiterate or does not read English, state that the bail bond agent or a third party has read or translated the agreement for the principal or indemnitor.

(b) if used in the bail bond transaction, a promissory note must be:

(i) in writing;

(ii) signed by the bail bond agent; and

(iii) signed by the principal or indemnitor.

(i) be dated;

(ii) be in writing;

(iii) be signed by the bail bond agent;

(iv) be signed by the principal or indemnitor;

(v) be prenumbered;

(vi) contain a full description of the collateral, including the condition of the collateral at the time it is taken into custody; and

(vii) set forth the amount of bail, the name of the principal, the court case number, the court where the bond is executed, the amount of premium, the amount and type of collateral held by the bail bond agent, and the conditions under which the collateral is to be returned.

(d) a prenumbered, signed receipt for payments made pursuant to a promissory note must be given to the person tendering payment for each payment received. The payment receipt must contain the date, the principal's name, a description of the consideration and amount of money received, the purpose for which it was received, the amount of the bail bond, and the name of the person tendering payment; and

(e) a bail bond agent shall provide an advance written disclosure of any and all charges, excluding premium, that the principal or indemnitor may incur including, but not limited to, costs, storage, mileage, and fees. The disclosure must be:

(i) in writing;

(ii) dated;

(iii) signed by the bail bond agent; and

(iv) signed by the principal or indemnitor.

AUTH: 33-26-108, MCA

IMP: 33-17-1001, 33-18-213, 33-26-108, 46-9-403, MCA

NEW RULE XI FORM (1) The following form must be used pursuant to [New Rule II(3)]:

(a) APPENDIX A

STATE OF MONTANA

BAIL BOND AGENT BOND

BOND NO. ______________________

BOND AMOUNT $25,000.00

KNOW ALL PERSONS BY THESE PRESENTS:

That we, ____________________ as PRINCIPAL, and_______________________, a corporation duly organized and existing under the laws of the state of __________, and authorized to do business in the state of Montana, as SURETY, are held and firmly bound unto the state of Montana, in the penal sum of $25,000 lawful money of the United States for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and severally, firmly by these presents.

WHEREAS, the PRINCIPAL is subject to the provisions of the Montana Insurance Code, Mont. Code Ann. § 33-1-101 et seq. (Code), and the administrative rules promulgated thereunder (Rules), and shall faithfully comply with the provisions thereof;

WHEREAS, this bond is established in favor of a person, and the Montana State Auditor, Commissioner of Securities and Insurance (Commissioner) on behalf of a person injured as a result of a violation or violations of the Code or the Rules by the PRINCIPAL; and

WHEREAS, this bond is established in favor of the Commissioner on behalf of the state of Montana for any fines levied, or restitution ordered, as against the PRINCIPAL and SURETY for a violation or violations of the Code or the Rules by the PRINCIPAL.

NOW THEREFORE, THE CONDITIONS OF THIS OBLIGATION ARE SUCH that if the above bonded PRINCIPAL shall faithfully comply with the provisions of the Code, the Rules, and orders of the Commissioner pursuant thereto, then and in that event the forgoing obligation shall be void, otherwise to remain in full force and effect.

PROVIDED HOWEVER, AND UPON THE FOLLOWING EXPRESS CONDITIONS that any person, an issuing commercial bail surety insurer, or a court claiming against the bond for a violation of the Code or Rules occurring during the time period during which this bond is in effect may maintain an action at law against the PRINCIPAL and SURETY, or may file a consumer complaint with the Office of the Montana State Auditor, Commissioner of Securities and Insurance, which may result in fines and/or restitution after notice and opportunity for hearing before the Commissioner. The aggregate liability of the SURETY may not exceed the amount of this surety bond.

PROVIDED FURTHER, that the SURETY may terminate its liability hereunder as to future acts of the PRINCIPAL at any time by giving twenty-one days written notice of such termination to the Commissioner.

This bond is for a definite term beginning __________, and ending _____________, and may be continued by a Continuation Certificate.

SIGNED, SEALED, and DATED this _____ day of__________________________.

PRINCIPAL, Bail Bond Agent

By________________________________

(Signature)

__________________________________

(Printed Name)

SURETY, Attorney in Fact

By: _______________________________,

(Signature)

__________________________________,

(Printed Name)

[Affix Power of Attorney]

AUTH: 33-1-313, 33-26-108, MCA

IMP: 33-17-1001, 33-26-108, MCA

4. STATEMENT OF REASONABLE NECESSITY: The Montana State Auditor, Commissioner of Securities and Insurance, Monica J. Lindeen, (commissioner) is the statewide elected official responsible for administering the Montana Insurance Code and regulating the business of insurance.

The commissioner is the President of the National Association of Insurance Commissioners (NAIC). The NAIC is an organization of insurance regulators from the 50 states, the District of Columbia, and the U.S. Territories. The NAIC provides a forum for the development of uniform policy and regulation when uniformity is appropriate.

In 2003, the legislature granted the commissioner rulemaking authority for surety insurance producers who sell, solicit, or negotiate commercial bail bonds pursuant to 33-26-108, MCA. The commissioner has received consumer complaints indicating the need for regulation of bail bond agents. Additionally, the commissioner has received requests for regulation from members of the industry seeking specific rules in order to give guidance to the industry, to proscribe against certain conduct, to prevent abuse against consumers, and to level the field in order to prevent unfair methods of competition. Therefore, the commissioner has determined that new rules be proposed in accord with 33-26-108, MCA, at this time.

NEW RULE I is proposed to be adopted in order to define terms for these rules.

NEW RULE II is proposed to be adopted in order to establish the requirement of the posting of a surety bond by each bail bond agent so as to protect or indemnify persons, and the commissioner on behalf of persons injured as a result of a violation of an administrative rule or the Montana Insurance Code. The commissioner has determined that the proposed rule is reasonably necessary so as to ensure against financial irresponsibility of bail bond agents, and to provide a mechanism to redress harm resulting to consumers and other persons involved in the surety bail industry.

NEW RULE III is proposed to be adopted in order to establish the requirement for a bail bond agent, or a bail bond agency, to provide notice to the commissioner in the event that the bail bond agent, or the bail bond agency, files for bankruptcy. The proposed rule is reasonably necessary to allow the commissioner to take the necessary regulatory action in the event that bail bond agents, or bail bond agencies, become insolvent.

NEW RULE IV is proposed to be adopted to establish a procedure for the winding up of business of a bail bond agent in the event that the bail bond agent dies, or becomes incapacitated, or incompetent. The proposed rule is reasonably necessary in order to promote the orderly transfer of business in the event that a bail bond agent becomes unable to carry on the bail bond agent's business, to provide notice to the commissioner in such an event, and to ensure that a bail bond agent accepting bail bond business from a bail bond agent who has died, or become incapacitated or incompetent, is in good standing with the commissioner and compliant with Montana law and regulations.

NEW RULE V is proposed to be adopted in order to establish an orderly procedure for the sale or transfer of the business of a bail bond agent to another bail bond agent pursuant to a contract, and to provide the commissioner with notice of the transferring bail bond agent's outstanding bond obligations so that the interests of insurance consumers may be protected.

NEW RULE VI is proposed to be adopted in order to prohibit the signing of blank bail bonds, and the utilization of unlicensed bail bond agents. The proposed rule is reasonably necessary to prevent the illegal utilization of unlicensed bail bond agents.

NEW RULE VII is proposed to be adopted in order to establish rules relating to collateral and trust accounts, and to establish the requirement that bail bond agents keep records of arrests and lists of forfeitures. It also seeks to clarify that bail bond agents may bill for actual costs. The proposed rule is reasonably necessary so as to ensure that adequate records are maintained for collateral security, and that collateral security, costs, and fees are reasonable.

NEW RULE VIII is proposed to be adopted in order to establish proscriptions against certain conduct in the surety bail bond industry and to provide for discipline for engaging in such conduct. The proposed rule is necessary in order to clearly prohibit improper conduct and to address certain conduct that has been the subject of consumer complaints.

NEW RULE IX is proposed to be adopted in order to establish rules for bail bond agents who defer payment of full premium. The proposed rule is reasonably necessary to protect consumers from usurious interest rates and so that consumers will be reasonably informed of the terms and conditions of their payment agreement.

NEW RULE X is proposed to be adopted to establish minimum requirements for documents relating to the surety bail bond industry. The proposed rule is reasonably necessary to ensure that documents used in bail bond transactions meet minimum legal requirements in order to provide full disclosure and to protect insurance consumers.

NEW RULE XI is proposed to be adopted to provide a template for the surety bond required under New Rule II. The proposed rule is reasonable necessary to allow bail bond agents to fulfill the requirements of New Rule II, which requires the use of an approved surety bond.

5. Concerned persons may submit their data, views, or arguments concerning the proposed actions either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to Michael Winsor, Attorney, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2004; fax (406) 444-5223; or e-mail [email protected], and must be received no later than 5:00 p.m., November 27, 2015.

6. Michael Winsor, Attorney, has been designated to preside over and conduct this hearing.

7. The CSI maintains a list of concerned persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to Darla Sautter using the contact information in 2 above, or may be made by completing a request form at any rules hearing held by the CSI.

8. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

9. Pursuant to 2-4-302, MCA, the bill sponsor contact requirement applies. Senator Jim Keane, sponsor of HB 169, was contacted directly by mail through the U.S. Postal Service on February 11, 2014.

10. ECONOMIC IMPACT STATEMENT: The CSI has complied with the requirements of 2-4-111, MCA. New Rule II requires each individual surety producer to post bond in the amount of $25,000. The actual out-of-pocket cost to each individual surety producer per annum is estimated to be approximately 1 to 2% of premium for the bond, equaling approximately $50-$250.

/s/ Nick Mazanec /s/ Jesse Laslovich

Nick Mazanec Jesse Laslovich

Rule Reviewer Chief Legal Counsel

Certified to the Secretary of State October 19, 2015.