Insurers in Nevada: Who They Are, Where They Were Formed, and When They May Do Business

Introduction

Every insurance policy has a company or other organization behind it that promises to pay covered losses. Nevada law asks three separate questions about that organization:

• Is it an insurer? Is it the party that makes the insurance promise?
• Where is its home? Under which state's or country's laws was it formed?
• Does it have Nevada permission? Does it hold a current permit from Nevada's Commissioner of Insurance?

These questions have different answers, and one answer does not decide another. A company formed in Nevada can still lack Nevada permission. A company formed overseas can have it. This lesson teaches each question separately, then shows how they combine. It also covers two related definitions: what counts as doing insurance business, and what counts as the price of insurance.

By the end of this lesson, you should be able to:

• Recognize which party in a scenario is the insurer, and name the three ways an insurer can be organized.
• Classify an insurer as domestic, foreign or alien based on where it was formed.
• Tell an authorized insurer from an unauthorized one, and tell the insurer's permit apart from a person's license.
• Identify the activities that count as doing insurance business, and explain what changes when an unauthorized insurer is involved.
• Decide which charges are part of the premium under Nevada's definition.

Before you start: This lesson builds on why insurance works and what it can insure and Nevada's Commissioner: authority, examinations and hearings. The Commissioner is the state official who issues the permits discussed here.

All companies, people and dollar amounts below are fictional.

The Insurer: The Party That Makes the Promise to Pay

Insurer means the party that promises, as its own business, to pay for covered losses. Nevada's definition says an insurer includes every person engaged as principal in the business of entering into insurance contracts, whether as indemnitor, surety or contractor. In the Insurance Code, "person" can mean a company as well as an individual.

Two terms in that definition need translating:

• Principal means acting for yourself and taking on the obligation yourself. The principal is not someone acting on another party's behalf.
• Indemnitor means the party that pays to restore someone after a loss. "Surety" and "contractor" are other roles in which a party takes on the promise.

The key word is principal. The insurer is the party whose promise is in the contract and whose money is on the line. Someone who only arranges the coverage is not the insurer.

Example. Priya owns a small rental house in Reno. A producer named Jordan helps Priya buy a fire policy from Silver Mesa Fire Insurance Company. The policy says Silver Mesa will pay for covered fire damage. (A producer is a person who must be licensed in Nevada to sell, solicit or negotiate insurance.)

• Silver Mesa is the insurer. It makes the payment promise, and its funds pay a covered claim.
• Jordan is not the insurer. Jordan arranged the purchase, but Jordan made no promise to pay Priya's losses.

Change one fact. Suppose Jordan sets up a side business. Homeowners pay Jordan directly, and Jordan promises to cover their fire losses from Jordan's own money. Jordan is now acting as principal in the business of making insurance contracts, so Jordan meets the definition of an insurer. That does not make Jordan's side business legal. Nevada law says a person may not act as an insurer without the Commissioner's permit, which you'll learn about below.

The tempting mistake is to call whoever you dealt with "the insurance company." The question is not who you spoke to. The question is who made the promise to pay.

Three ways an insurer can be organized

Nevada law describes three organizational forms. Each answers the question "Who owns or runs this insurer?"

• Stock insurer: owned by shareholders. It is an incorporated company whose capital is divided into shares owned by stockholders.
• Mutual insurer: run by its policyholders, with no shareholders. It is an incorporated company without capital stock, and its policyholders elect its governing body. Nevada can also treat some insurers formed in other states as mutuals. This applies when the Commissioner finds they are organized on the mutual plan under their home state's law, even if they have temporary share capital or elect their governing body on some other reasonable basis.
• Reciprocal insurer: members insuring one another through a shared manager. It is an unincorporated group of subscribers (participating members) who insure one another. They act individually and together through a common attorney-in-fact, an appointed representative that manages the arrangement for all of them.

To tell them apart, ask: Are there shareholders? (stock) Do the policyholders elect the board, with no shares? (mutual) Is it an unincorporated group of members acting through one shared representative? (reciprocal)

Check your understanding. Lakeview Owners Exchange is not incorporated. Its members agree to insure one another's buildings, and they act through one appointed manager that signs contracts for all of them. Which organizational form is this? And if a member's insurance agent recommended the exchange, is that agent an insurer?

Domicile: Where the Insurer Was Legally Formed

An insurer's domicile is its legal home: the place whose laws it was formed (or converted) under. Nevada uses three labels:

• Domestic insurer: formed in Nevada. It was formed under Nevada law and has not converted into a foreign insurer, or it converted into a domestic insurer.
• Foreign insurer: formed somewhere other than Nevada. It was formed under the laws of any jurisdiction other than Nevada and has not converted into a domestic insurer, or it converted into a foreign insurer.
• Alien insurer: formed outside the United States. It was formed under the laws of a country other than the United States or any U.S. state.

"Converted" means the insurer legally changed its home jurisdiction. Without a conversion, the place of formation controls.

The definition looks only at the law the insurer was formed under. Nevada's definitions do not use where the insurer keeps offices or where its customers live.

Example (no conversions):

• Silver Mesa was formed under Nevada law but runs its main office in Sacramento. It is domestic. The office location doesn't change where it was formed.
• Copper Ridge Insurance Company was formed under Arizona law and has a large office in Las Vegas. It is foreign. A Nevada office doesn't make it a Nevada insurer.
• Maple Shield Assurance was formed under Canadian law. It is alien.

One overlap to remember. In Nevada law, "foreign" also includes "alien" unless the context separates them. So Maple Shield is alien, and it is also covered when a rule speaks of foreign insurers, unless that rule distinguishes the two. "Alien" is the more specific label.

Change one fact. Suppose Copper Ridge, the Arizona company, legally converts into a domestic insurer. It is now domestic, because the definition counts an insurer that has converted into a domestic insurer.

Check your understanding. For each insurer, assume no conversion and give the domicile label:

1. Formed under Texas law; serves only Nevada customers.
2. Formed under Nevada law; all its staff work in Utah.
3. Formed under the laws of Germany.

Certificate of Authority: The Insurer's Permit to Do Business in Nevada

A certificate of authority is the permit the Commissioner issues to an insurer allowing it to do insurance business in Nevada.

• An authorized insurer holds a certificate that is currently in force. (The statute calls this a "subsisting" certificate, meaning it is still valid.)
• An unauthorized insurer does not.

Nevada's general rule is that an insurer may not do insurance business in Nevada, by mail or any other way, unless its certificate is in full force. The only transactions outside this rule are ones the Insurance Code expressly lists. Those exceptions appear later in this lesson.

Domicile and authority answer different questions

• Domicile asks: Where was this insurer formed?
• Authority asks: Does this insurer currently hold Nevada's permit?

Neither answer predicts the other:

• Silver Mesa (domestic) without a current certificate is an unauthorized insurer. Being formed in Nevada did not give it permission.
• Maple Shield (alien) with a current certificate is an authorized insurer. Being formed abroad did not prevent it.

The tempting mistake is to assume a Nevada-formed insurer is automatically allowed to sell here. Formation creates the company. The certificate is a separate permission.

What an insurer must show to get and keep a certificate

A certificate is not automatic. Under Nevada's eligibility rules, an insurer must:

• Comply with the Insurance Code and stay within the powers its charter (founding document) gives it.
• Be an incorporated stock or mutual insurer, or a reciprocal insurer, of the same general type that could be formed as a domestic insurer.
• Be authorized for that kind of insurance in its own home state or country.
• Write only kinds of insurance that fit Nevada's statutory definitions of kinds of insurance.
• Not owe the state unpaid fees, taxes, assessments, fines or penalties from earlier Nevada business.

Two further limits apply:

• Government ownership. A foreign insurer that is owned or controlled, in whole or in substantial part, by a government cannot be authorized. The statute says some things do not count as government ownership or control: policyholder membership in a mutual, subscribership in a reciprocal, non-voting stock, certain stock held by a U.S. government custodian, and supervision by a public authority. Being regulated by a government is not the same as being owned by one.
• Management fitness. The Commissioner must not grant or continue authority if, for example, someone materially part of management is found incompetent, dishonest or untrustworthy, or if the managers lack enough relevant experience to run the proposed operation safely.

The insurer's certificate is not a person's license

Two kinds of permission are easy to confuse:

• A certificate of authority belongs to the insurer. It answers: May this company do insurance business in Nevada?
• A producer license belongs to a person who sells, solicits or negotiates insurance. It answers: May this individual (or agency) act as a producer?

One cannot stand in for the other. Suppose Jordan holds a valid producer license but places Priya's coverage with an insurer that has no certificate. The insurer is still unauthorized. Jordan's license gives the insurer no authority. Which licenses individuals need is covered in who needs which Nevada insurance license.

Check your understanding. Desert Crest Insurance Company was formed under Nevada law. It has no certificate of authority. Its sales representative, Sam, holds a valid Nevada producer license. A customer says, "Desert Crest is a Nevada company and Sam is licensed, so Desert Crest must be authorized." What is wrong with that reasoning?

Transacting Insurance: The Activities That Count as Doing Insurance Business

To transact insurance means to carry on insurance business. The rule requiring a certificate applies when an insurer transacts insurance in Nevada, so you need to know which activities count. Nevada's definition includes any of these:

1. Solicitation or inducement: asking or encouraging someone to buy.
2. Negotiations: discussing terms, coverage or price.
3. Effectuation of a contract: putting the policy into effect.
4. Matters after the contract takes effect that arise from it: for example, handling the policy and its claims afterward.

Two qualifiers widen this:

• It counts by mail or otherwise. It doesn't have to be face to face. For acts done by mail, Nevada's unauthorized-insurance statute treats the act as happening where the mailed item is delivered and takes effect.
• It counts whether or not the purpose is profit.

The list also shows that business starts before any policy exists. Steps 1 and 2 happen before the policy is issued.

Example (a timeline). Copper Ridge mails a brochure to a Henderson business owner urging them to buy property coverage. That is solicitation. The owner calls and asks about a lower deductible, and Copper Ridge adjusts the quote. That is negotiation. The policy is issued. That is effectuation. Months later, Copper Ridge processes a policy change and a claim. Those are matters arising after effectuation. Every step is transacting insurance, including the first two, which happened before any policy existed.

When the insurer is unauthorized

Nevada makes it unlawful for an insurer to transact insurance business in Nevada without a certificate of authority, unless an exception applies. The statute lists acts in Nevada, done by or on behalf of an unauthorized insurer, that count as transacting business. They include:

• Making, or proposing to make, an insurance contract.
• Taking or receiving an application for insurance.
• Receiving or collecting premiums, commissions, fees, dues or other payment for the insurance.
• Issuing or delivering insurance contracts to Nevada residents.
• Directly or indirectly helping in the solicitation, negotiation, procurement or effectuation of the insurance. Procurement means obtaining the coverage for someone. Helping also includes spreading coverage or rate information, forwarding applications, delivering policies, inspecting risks, or adjusting claims.

Helping is on the list. A person who forwards an application or delivers a policy for an unauthorized insurer is taking part in the transaction, even without signing the contract.

Exceptions are specific, not a blanket permission

The law lists specific situations where a certificate is not required. Here are two examples:

• Surplus lines coverage lawfully written under Nevada's surplus-lines law, chapter 685A of NRS. This is a separate legal path with its own rules, taught in Nevada rate standards and surplus-lines placement.
• Wrapping up former authorized business. An insurer that used to be authorized may still investigate, settle or litigate claims under policies it lawfully wrote in Nevada. It may also liquidate (wind down) its assets and liabilities from those operations. This exception does not cover collecting new premiums.

The statute lists other narrow exceptions as well. Each covers only the situation described. None of them lets an unauthorized insurer do business here generally.

What happens to a contract with an unauthorized insurer

You might expect a policy from an unauthorized insurer to be void. It isn't. The law says the missing certificate does not by itself make the insurer's contract invalid. Instead, the consequences fall on the insurer and on the people who helped:

• The insurer's lawsuits are restricted. The unauthorized insurer may defend itself in Nevada courts. It may not sue in Nevada to enforce rights arising from that business until it obtains a certificate.
• Helpers can owe the claim. If the unauthorized insurer fails to pay a claim or loss the contract covers, anyone who assisted in procuring that contract is liable to the insured for the full amount, as the contract provides.

Example. Taylor, a Carson City shop owner, buys a property policy from Harbor Gate Insurance. Harbor Gate has no Nevada certificate, and no exception applies. A friend of Taylor's forwarded the application for Harbor Gate. A covered fire causes a $30,000 loss, and Harbor Gate doesn't pay.

• Taylor's policy is still a valid contract.
• The friend, who helped procure the policy, is liable to Taylor for the full $30,000 covered loss, as the policy provides.
• Harbor Gate cannot sue in a Nevada court to enforce rights from this business until it gets a certificate. It can still defend itself if Taylor sues.

Check your understanding. Rivera Holdings, a former authorized insurer, stopped writing new Nevada business. It is still settling claims under policies it lawfully wrote here. It also wants to mail renewal bills and collect new premiums from its old Nevada customers. Which activity needs no certificate, and which one is a problem?

Premium: Everything Charged for the Insurance, Whatever Its Name

Premium means the price paid for insurance. Nevada defines it as the consideration for insurance, by whatever name it is called. Consideration means what someone gives in exchange for something else.

The definition expressly includes any assessment, and any membership, policy, survey, inspection, service or similar fee or charge. To count, it must be assessed or collected by the insurer or the insurer's agent in exchange for the insurance contract or for obtaining it.

The label on the bill doesn't decide the answer. What decides it is what the charge is paid for. If you must pay it to get the insurance, it is premium, whatever it's called.

Worked example. Assumptions for this example: Silver Mesa's agent bills Priya for a fire policy. Priya cannot get the policy without paying every charge on this list:

• Coverage charge: $1,140
• "Policy fee": $75
• "Inspection fee" for the required pre-issue inspection: $40

Each charge is collected by the insurer or its agent and is paid in exchange for the policy or for obtaining it. So all three are premium:

$1,140 + $75 + $40 = $1,255

Check: the total is larger than the coverage charge alone, as it should be, because the fees are added to it rather than kept separate.

Change one fact. Suppose that, on the same visit, Priya also pays the agency $20 to notarize an unrelated personal document. That payment isn't made in exchange for the insurance contract or for obtaining it. It does not fit the premium definition just because the same office collected it. The premium stays $1,255.

The tempting mistake is to count only the line labeled "premium" and treat fees as something else. Nevada's definition prevents that. A required charge for the insurance counts no matter what it's named.

Check your understanding. Assumptions: To join and obtain a policy from a mutual insurer, Alex must pay a $900 coverage charge, a $50 "membership fee," and a $25 "service charge." All are collected by the insurer's agent and required for the policy. What is the premium?

Two Look-Alike Terms: Reciprocal Insurer and Reciprocal State

The word "reciprocal" appears in two unrelated places:

• A reciprocal insurer is an organization that provides insurance. It is the unincorporated group of subscribers insuring one another through an attorney-in-fact, as described earlier.
• A reciprocal state is another U.S. state or territory whose laws have enforcement procedures substantially similar to Nevada's. The procedures in question are for enforcing certain court orders against insurers. The Commissioner decides which states qualify and keeps the list current. An authenticated court order from a reciprocal state, against an insurer incorporated or authorized in Nevada, can be filed in a Nevada district court. It is then treated like a Nevada district court order and is subject to the same procedures and defenses.

The first answers "What kind of organization is this insurer?" The second answers "Which states' court orders against insurers can Nevada enforce this way?" A reciprocal state is not an insurer.

Practice on Your Own

Work through each case before opening the answer. Use only what this lesson taught.

1. Granite Point Insurance was formed under Utah law. It holds a current Nevada certificate of authority, and its policyholders elect its board. It has no capital stock. Give its domicile label, its authority status, and its organizational form.

2. An insurer formed under Mexican law, with no Nevada certificate, emails a Nevada resident a quote. The insurer then negotiates the deductible by phone. No policy has been issued yet. Has it transacted insurance? What is its domicile label?

3. Morgan, a licensed producer, says: "My license lets me sell for any insurer, authorized or not." Is Morgan right?

4. Assumptions: A buyer must pay a $620 coverage charge, a $35 "survey fee," and a $15 "policy fee" to get a policy. All are collected by the insurer's agent. The buyer separately pays the agency $10 to print copies of unrelated family records. What is the premium?

What to Remember

• Insurer = the party making the insurance promise as principal. Someone who only arranges coverage is not the insurer. Insurers can be organized as stock (shareholder-owned), mutual (policyholders elect the board, no shares) or reciprocal (unincorporated subscribers acting through a common attorney-in-fact).
• Domicile depends on where the insurer was formed, adjusted only by a legal conversion. Offices and customers don't change it. Domestic = Nevada; foreign = elsewhere; alien = outside the United States. "Foreign" includes "alien" unless the context separates them.
• Authorized = holds a current Nevada certificate of authority; unauthorized = does not. Domicile does not decide authority, and certificates require meeting eligibility standards.
• The insurer's certificate of authority and a person's producer license are separate. One cannot substitute for the other.
• Transacting insurance includes soliciting, negotiating, putting the policy into effect, and handling matters arising afterward. This counts by mail or otherwise and whether or not for profit.
• With an unauthorized insurer, taking applications, collecting premiums and helping procure coverage all count as transacting insurance. Exceptions are specific. The contract stays valid, but the insurer cannot sue in Nevada to enforce rights from that business until it gets a certificate, and helpers can owe a covered claim the insurer fails to pay.
• Premium = every charge paid for the insurance or for obtaining it, whatever it is called.

To keep practicing, try Solve mixed cases and repair your weak spots. For how producers handle premium money, see Handling premium funds, commissions and transaction records.