§27-17A-14. Surety bond.

(a) As an alternative to the trust requirement of Section 27-17A-13, the details of which are set forth in Articles 3 and 4, a preneed provider may, with the prior approval of the commissioner, purchase a surety bond in an amount not less than the aggregate value of outstanding liabilities on undelivered preneed contracts for merchandise, services, and cash advances. For the purposes of this section, the term outstanding liabilities means the original retail amount of services and cash advances and the actual cost to the entity to provide the undelivered merchandise sold on each contract written after April 30, 2002. The surety bond shall be in an amount sufficient to cover the outstanding liability at the time each contract is executed.

(b) The bond shall be made payable to the State of Alabama for the benefit of the commissioner and of all purchasers of preneed merchandise, services, and cash advances. The bond shall be issued by an insurance company licensed in the State of Alabama and authorized to issue surety bonds and approved by the commissioner.

(c) The amount of the bond shall be based on a report documenting the outstanding liabilities of the preneed provider for the previous calendar quarter and the projected liability for the immediately following quarter, shall be prepared by the preneed provider using generally accepted accounting principles, and shall be signed by the chief executive officer or chief financial officer of the preneed provider. The report shall be compiled as of the end of the preneed provider's fiscal year and updated quarterly.

(d) The amount of the bond shall be increased or decreased as necessary to correlate with changes in the outstanding liabilities. Further, the commissioner may order the bond to be increased as necessary to correlate with changes in the outstanding liabilities of bonded contracts due to increases in the consumer price index.

(e) If the preneed provider fails to maintain a bond pursuant to this section the preneed provider shall cease the offering for sale and sale of preneed merchandise, services, and cash advances.

(f) No surety bond used to comply with this section shall be canceled or subject to cancellation unless at least 60 days' advance notice thereof, in writing, is filed with the commissioner, by the surety company. The cancellation of the bond shall not relieve the obligation of the surety company for claims arising out of contracts issued or otherwise covered before cancellation of the bond. In the event that notice of termination of the bond is filed with the commissioner, the certificate holder insured thereunder shall, within 30 days of the filing of the notice of termination with the commissioner, provide the commissioner with a replacement bond or with evidence which is satisfactory to the commissioner demonstrating that the provisions of this chapter have been fully complied with. If within 30 days of filing of the notice of termination with the commissioner no replacement bond acceptable to the commissioner or no evidence satisfactory to the commissioner demonstrating that the provisions of this chapter have been complied with is filed with the commissioner, the commissioner shall suspend the license of the certificate holder until the certificate holder files a replacement bond acceptable to the commissioner or demonstrates to the satisfaction of the commissioner that it has complied with the provisions of this chapter.

(g) Upon prior approval by the commissioner, the preneed provider may file with the commissioner a letter of credit in the amount of the outstanding liabilities in lieu of a surety bond, in the form and subject to the terms and conditions evidencing the financial responsibility of the party or parties issuing the letter of credit, and otherwise, as may be prescribed by the commissioner.

(Act 2002-74, p. 221, §1; Act 2014-216, §3.)