BILL NUMBER: AB 3055	CHAPTERED  07/08/08

	CHAPTER  80
	FILED WITH SECRETARY OF STATE  JULY 8, 2008
	APPROVED BY GOVERNOR  JULY 8, 2008
	PASSED THE SENATE  JUNE 26, 2008
	PASSED THE ASSEMBLY  MAY 15, 2008
	AMENDED IN ASSEMBLY  APRIL 23, 2008

INTRODUCED BY   Committee on Insurance (Coto (Chair), Benoit (Vice
Chair), Berg, Charles Calderon, Carter, De Leon, Duvall, Lieber, and
Parra)

                        FEBRUARY 28, 2008

   An act to amend Sections 1063.1, 1063.2, and 1063.75 of the
Insurance Code, relating to insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 3055, Committee on Insurance. Insurance: Guarantee Association.

   Existing law establishes the California Insurance Guarantee
Association to provide coverage against losses arising from the
failure of an insolvent property, casualty, or workers' compensation
insurer to discharge its obligations under its insurance policies.
The association is managed by a board of governors appointed by the
commissioner, the President pro Tempore of the Senate, and the
Speaker of the Assembly. Existing law defines a "covered claim" for
purposes of the association's operations.
   This bill would delete from a list of categories of claims
excluded from that definition of "covered claims" those claims made
after the insurance policy has been canceled by the association, as
specified.
   Existing law provides that the association shall pay covered
claims either directly or through designated 3rd parties. If a
covered claim is paid in excess of the amount authorized, as
specified, the excess amount may be recovered by an action brought by
the association.
   This bill would authorize the association to recover these
overpayments by an action or other proceeding.
   Existing law provides that any bonds to provide funds for covered
claim obligations for workers' compensation claims shall be issued,
as specified, prior to January 1, 2009.
   This bill would extend the date for bonds to be issued to provide
funds for covered claim obligations for workers' compensation claims,
as specified, to January 1, 2011.
   This bill would also make technical and conforming changes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 1063.1 of the Insurance Code is amended to
read:
   1063.1.  As used in this article:
   (a) "Member insurer" means an insurer required to be a member of
the association in accordance with subdivision (a) of Section 1063,
except and to the extent that the insurer is participating in an
insolvency program adopted by the United States government.
   (b) "Insolvent insurer" means an insurer that was a member insurer
of the association, consistent with paragraph (11) of subdivision
(c), either at the time the policy was issued or when the insured
event occurred, and against which an order of liquidation or
receivership with a finding of insolvency has been entered by a court
of competent jurisdiction, or, in the case of the State Compensation
Insurance Fund, if a finding of insolvency is made by a duly enacted
legislative measure.
   (c) (1) "Covered claims" means the obligations of an insolvent
insurer, including the obligation for unearned premiums, (A) imposed
by law and within the coverage of an insurance policy of the
insolvent insurer; (B) which were unpaid by the insolvent insurer;
(C) which are presented as a claim to the liquidator in this state or
to the association on or before the last date fixed for the filing
of claims in the domiciliary liquidating proceedings; (D) which were
incurred prior to the date coverage under the policy terminated and
prior to, on, or within 30 days after the date the liquidator was
appointed; (E) for which the assets of the insolvent insurer are
insufficient to discharge in full; (F) in the case of a policy of
workers' compensation insurance, to provide workers' compensation
benefits under the workers' compensation law of this state; and (G)
in the case of other classes of insurance if the claimant or insured
is a resident of this state at the time of the insured occurrence, or
the property from which the claim arises is permanently located in
this state.
   (2) "Covered claims" also include the obligations assumed by an
assuming insurer from a ceding insurer where the assuming insurer
subsequently becomes an insolvent insurer if, at the time of the
insolvency of the assuming insurer, the ceding insurer is no longer
admitted to transact business in this state. Both the assuming
insurer and the ceding insurer shall have been member insurers at the
time the assumption was made. "Covered claims" under this paragraph
shall be required to satisfy the requirements of subparagraphs (A) to
(G), inclusive, of paragraph (1), except for the requirement that
the claims be against policies of the insolvent insurer. The
association shall have a right to recover any deposit, bond, or other
assets that may have been required to be posted by the ceding
company to the extent of covered claim payments and shall be
subrogated to any rights the policyholders may have against the
ceding insurer.
   (3) "Covered claims" does not include obligations arising from the
following:
   (A) Life, annuity, health, or disability insurance.
   (B) Mortgage guaranty, financial guaranty, or other forms of
insurance offering protection against investment risks.
   (C) Fidelity or surety insurance including fidelity or surety
bonds, or any other bonding obligations.
   (D) Credit insurance.
   (E) Title insurance.
   (F) Ocean marine insurance or ocean marine coverage under any
insurance policy including claims arising from the following: the
Jones Act (46 U.S.C. Sec. 688), the Longshore and Harbor Workers'
Compensation Act (33 U.S.C. Sec. 901 et seq.), or any other similar
federal statutory enactment, or any endorsement or policy affording
protection and indemnity coverage.
   (G) Any claims servicing agreement or insurance policy providing
retroactive insurance of a known loss or losses, except a special
excess workers' compensation policy issued pursuant to subdivision
(c) of Section 3702.8 of the Labor Code that covers all or any part
of workers' compensation liabilities of an employer that is issued,
or was previously issued, a certificate of consent to self-insure
pursuant to subdivision (b) of Section 3700 of the Labor Code.
   (4) "Covered claims" does not include any obligations of the
insolvent insurer arising out of any reinsurance contracts, nor any
obligations incurred after the expiration date of the insurance
policy or after the insurance policy has been replaced by the insured
or canceled at the insured's request, or after the insurance policy
has been canceled by the liquidator, nor any obligations to any state
or to the federal government.
   (5) "Covered claims" does not include any obligations to insurers,
insurance pools, or underwriting associations, nor their claims for
contribution, indemnity, or subrogation, equitable or otherwise,
except as otherwise provided in this chapter.
   An insurer, insurance pool, or underwriting association may not
maintain, in its own name or in the name of its insured, any claim or
legal action against the insured of the insolvent insurer for
contribution, indemnity or by way of subrogation, except insofar as,
and to the extent only, that the claim exceeds the policy limits of
the insolvent insurer's policy. In those claims or legal actions, the
insured of the insolvent insurer is entitled to a credit or setoff
in the amount of the policy limits of the insolvent insurer's policy,
or in the amount of the limits remaining, where those limits have
been diminished by the payment of other claims.
   (6) "Covered claims," except in cases involving a claim for
workers' compensation benefits or for unearned premiums, does not
include any claim in an amount of one hundred dollars ($100) or less,
nor that portion of any claim that is in excess of any applicable
limits provided in the insurance policy issued by the insolvent
insurer.
   (7) "Covered claims" does not include that portion of any claim,
other than a claim for workers' compensation benefits, that is in
excess of five hundred thousand dollars ($500,000).
   (8) "Covered claims" does not include any amount awarded as
punitive or exemplary damages, nor any amount awarded by the Workers'
Compensation Appeals Board pursuant to Section 5814 or 5814.5
because payment of compensation was unreasonably delayed or refused
by the insolvent insurer.
   (9) "Covered claims" does not include (A) any claim to the extent
it is covered by any other insurance of a class covered by this
article available to the claimant or insured nor (B) any claim by any
person other than the original claimant under the insurance policy
in his or her own name, his or her assignee as the person entitled
thereto under a premium finance agreement as defined in Section 673
and entered into prior to insolvency, his or her executor,
administrator, guardian or other personal representative or trustee
in bankruptcy and does not include any claim asserted by an assignee
or one claiming by right of subrogation, except as otherwise provided
in this chapter.
   (10) "Covered claims" does not include any obligations arising out
of the issuance of an insurance policy written by the separate
division of the State Compensation Insurance Fund pursuant to
Sections 11802 and 11803.
   (11) "Covered claims" does not include any obligations of the
insolvent insurer arising from any policy or contract of insurance
issued or renewed prior to the insolvent insurer's admission to
transact insurance in the State of California.
   (12) "Covered claims" does not include surplus deposits of
subscribers as defined in Section 1374.1.
   (13) "Covered claims" shall also include obligations arising under
an insurance policy written to indemnify a permissibly self-insured
employer pursuant to subdivision (b) or (c) of Section 3700 of the
Labor Code for its liability to pay workers' compensation benefits in
excess of a specific or aggregate retention, provided, however, that
for purposes of this article, those claims shall not be considered
workers' compensation claims and therefore are subject to the per
claim limit in paragraph (7) and any payments and expenses related
thereto shall be allocated to category (c) for claims other than
workers' compensation, homeowners, and automobile, as provided in
Section 1063.5.
   These provisions shall apply to obligations arising under any
policy as described herein issued to a permissibly self-insured
employer or group of self-insured employers pursuant to Section 3700
of the Labor Code and notwithstanding any other provision of the
Insurance Code, those obligations shall be governed by this provision
in the event that the Self-Insurers' Security Fund is ordered to
assume the liabilities of a permissibly self-insured employer or
group of self-insured employers pursuant to Section 3701.5 of the
Labor Code. The provisions of this paragraph apply only to insurance
policies written to indemnify a permissibly self-insured employer or
group of self-insured employers under subdivision (b) or (c) of
Section 3700, for its liability to pay workers' compensation benefits
in excess of a specific or aggregate retention, and this paragraph
does not apply to special excess workers' compensation insurance
policies unless issued pursuant to authority granted in subdivision
(c) of Section 3702.8 of the Labor Code, and as provided for in
subparagraph (G) of paragraph (3) of subdivision (c). In addition,
this paragraph does not apply to any claims servicing agreement or
insurance policy providing retroactive insurance of a known loss or
losses as are excluded in subparagraph (G) of paragraph (3) of
subdivision (c).
   Each permissibility self-insured employer or group of self-insured
employers, or the Self-Insurers' Security Fund, shall, to the extent
required by the Labor Code, be responsible for paying, adjusting,
and defending each claim arising under policies of insurance covered
under this section, unless the benefits paid on a claim exceed the
specific or aggregate retention, in which case:
   (A) If the benefits paid on the claim exceed the specific or
aggregate retention, and the policy requires the insurer to defend
and adjust the claim, the California Insurance Guarantee Association
(CIGA) shall be solely responsible for adjusting and defending the
claim, and shall make all payments due under the claim, subject to
the limitations and exclusions of this article with regards to
covered claims. As to each claim subject to this paragraph,
notwithstanding any other provisions of the Insurance Code or the
Labor Code, and regardless of whether the amount paid by CIGA is
adequate to discharge a claim obligation, neither the self-insured
employer, group of employers, nor the Self-Insurers' Security Fund,
shall have any obligation to pay benefits over and above the specific
or aggregate retention, except as provided in subdivision (c).
   (B) If the benefits paid on the claim exceed the specific or
aggregate retention, and the policy does not require the insurer to
defend and adjust the claim, the permissibility self-insured employer
or group of self-insured employers, or the Self-Insurers' Security
Fund, shall not have any further payment obligations with respect to
the claim, but shall continue defending and adjusting the claim, and
shall have the right, but not the obligation, in any proceeding to
assert all applicable statutory limitations and exclusions as
contained in this article with regard to the covered claim. CIGA
shall have the right, but not the obligation, to intervene in any
proceeding where the self-insured employer, group of self-insured
employers, or the Self-Insurers' Security Fund is defending any such
claim and shall be permitted to raise the appropriate statutory
limitations and exclusions as contained in this article with respect
to covered claims. Regardless of whether the self-insured employer or
group of employers, or the Self-Insurers' Security Fund, asserts the
applicable statutory limitations and exclusions, or whether CIGA
intervenes in any such proceeding, CIGA shall be solely responsible
for paying all benefits due on the claim, subject to the exclusions
and limitations of this article with respect to covered claims. As to
each claim subject to this paragraph, notwithstanding any other
provision of the Insurance Code or the Labor Code and regardless of
whether the amount paid by CIGA is adequate to discharge a claim
obligation, neither the self-insured employer, group of employers,
nor the Self-Insurers' Security Fund, shall have any obligation to
pay benefits over and above the specific or aggregate retention,
except as provided in this subdivision.
   (C) In the event that the benefits paid on the covered claim
exceed the per claim limit in paragraph (7) of subdivision (c), the
responsibility for paying, adjusting, and defending the claim shall
be returned to the permissibly self-insured employer or group of
employers, or the Self-Insurers' Security Fund.
   These provisions shall apply to all pending and future
insolvencies. For purposes of this paragraph, a pending insolvency is
one involving a company that is currently receiving benefits from
the guaranty association.
   (d) "Admitted to transact insurance in this state" means an
insurer possessing a valid certificate of authority issued by the
department.
   (e) "Affiliate" means a person who directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under
common control with an insolvent insurer on December 31 of the year
next preceding the date the insurer becomes an insolvent insurer.
   (f) "Control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies
of a person, whether through the ownership of voting securities, by
contract other than a commercial contract for goods or nonmanagement
services, or otherwise, unless the power is the result of an official
position with or corporate office held by the person. Control is
presumed to exist if any person, directly or indirectly, owns,
controls, holds with the power to vote, or holds proxies
representing, 10 percent or more of the voting securities of any
other person. This presumption may be rebutted by showing that
control does not in fact exist.
   (g) "Claimant" means any insured making a first party claim or any
person instituting a liability claim; provided that no person who is
an affiliate of the insolvent insurer may be a claimant.
   (h) "Ocean marine insurance" includes marine insurance as defined
in Section 103, except for inland marine insurance, as well as any
other form of insurance, regardless of the name, label, or marketing
designation of the insurance policy, that insures against maritime
perils or risks and other related perils or risks, which are usually
insured against by traditional marine insurance such as hull and
machinery, marine builders' risks, and marine protection and
indemnity. Those perils and risks insured against include, without
limitation, loss, damage, or expense or legal liability of the
insured arising out of or incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any vessel,
craft or instrumentality in use in ocean or inland waterways,
including liability of the insured for personal injury, illness, or
death for loss or damage to the property of the insured or another
person.
   (i) "Unearned premium" means that portion of a premium as
calculated by the liquidator that had not been earned because of the
cancellation of the insolvent insurer's policy and is that premium
remaining for the unexpired term of the insolvent insurer's policy.
"Unearned premium" does not include any amount sought as return of a
premium under any policy providing retroactive insurance of a known
loss or return of a premium under any retrospectively rated policy or
a policy subject to a contingent surcharge or any policy in which
the final determination of the premium cost is computed after
expiration of the policy and is calculated on the basis of actual
loss experience during the policy period.
  SEC. 2.  Section 1063.2 of the Insurance Code is amended to read:
   1063.2.  (a) The association shall pay and discharge covered
claims and in connection therewith pay for or furnish loss adjustment
services and defenses of claimants when required by policy
provisions. It may do so either directly by itself or through a
servicing facility or through a contract for reinsurance and
assumption of liabilities by one or more member insurers or through a
contract with the liquidator, upon terms satisfactory to the
association and to the liquidator, under which payments on covered
claims would be made by the liquidator using funds provided by the
association.
   (b) The association shall be a party in interest in all
proceedings involving a covered claim, and shall have the same rights
as the insolvent insurer would have had if not in liquidation,
including, but not limited to, the right to: (1) appear, defend, and
appeal a claim in a court of competent jurisdiction; (2) receive
notice of, investigate, adjust, compromise, settle, and pay a covered
claim; and (3) investigate, handle, and deny a noncovered claim. The
association shall have no cause of action against the insureds of
the insolvent insurer for any sums it has paid out, except as
provided by this article.
   (c) (1) If damages against uninsured motorists are recoverable by
the claimant from his or her own insurer, the applicable limits of
the uninsured motorists coverage shall be a credit against a covered
claim payable under this article. Any person having a claim that may
be recovered under more than one insurance guaranty association or
its equivalent shall seek recovery first from the association of the
place of residence of the insured, except that if it is a first-party
claim for damage to property with a permanent location, he or she
shall seek recovery first from the association of the permanent
location of the property, and if it is a workers' compensation claim,
he or she shall seek recovery first from the association of the
residence of the claimant. Any recovery under this article shall be
reduced by the amount of recovery from any other insurance guaranty
association or its equivalent. A member insurer may recover in
subrogation from the association only one-half of any amount paid by
such insurer under uninsured motorist coverage for bodily injury or
wrongful death (and nothing for a payment for anything else), in
those cases where the injured person insured by such an insurer has
proceeded under his or her uninsured motorist coverage on the ground
that the tort-feasor is uninsured as a result of the insolvency of
his or her liability insurer (an insolvent insurer as defined in this
article), provided that such member insurer shall waive all rights
of subrogation against such tort-feasor. Any amount paid a claimant
in excess of the amount authorized by this section may be recovered
by action, or other proceeding, brought by the association.
   (2) Any claimant having collision coverage on a loss which is
covered by the insolvent company's liability policy shall first
proceed against his or her collision carrier. Neither that claimant
nor the collision carrier, if it is a member of the association,
shall have the right to sue or continue a suit against the insured of
the insolvent insurance company for such collision damage.
   (d) The association shall have the right to recover from any
person who is an affiliate of the insolvent insurer and whose
liability obligations to other persons are satisfied in whole or in
part by payments made under this article the amount of any covered
claim and allocated claims expense paid on behalf of that person
pursuant to this article.
   (e) Any person having a claim or legal right of recovery under any
governmental insurance or guaranty program which is also a covered
claim, shall be required to first exhaust his or her right under the
program. Any amount payable on a covered claim shall be reduced by
the amount of any recovery under the program.
   (f) "Covered claims" for unearned premium by lenders under
insurance premium finance agreements as defined in Section 673 shall
be computed as of the earliest cancellation date of the policy
pursuant to Section 673 or subdivision (g) of this section.
   (g) "Covered claims" shall not include any judgments against or
obligations or liabilities of the insolvent insurer or the
commissioner, as liquidator, or otherwise resulting from alleged or
proven torts, nor shall any default judgment or stipulated judgment
against the insolvent insurer, or against the insured of the
insolvent insurer, be binding against the association.
   (h) "Covered claims" shall not include any loss adjustment
expenses, including adjustment fees and expenses, attorney fees and
expenses, court costs, interest, and bond premiums, incurred prior to
the appointment of a liquidator.
  SEC. 3.  Section 1063.75 of the Insurance Code is amended to read:
   1063.75.  Any bonds issued to provide funds for covered claim
obligations for workers' compensation claims shall be issued prior to
January 1, 2011, in an aggregate principal amount outstanding at any
one time not to exceed $1.5 billion, and any bonds issued or issued
to refund bonds shall not have a final maturity exceeding 20 years
from the date of issuance. The bonds shall be issued at the request
of CIGA, shall be in the form, shall bear the date or dates, and
shall mature at the time or times as the indenture authorized by the
request may provide. The bonds may be issued in one or more series,
as serial bonds or as term bonds, or as a combination thereof, and,
notwithstanding any other provision of law, the amount of principal
of, or interest on, bonds maturing at each date of maturity need not
be equal. The bonds shall bear interest at the rate or rates,
variable or fixed or a combination thereof, be in the denominations,
be in the form, either coupon or registered, carry the registration
privileges, be executed in the manner, be payable in the medium of
payment at the place or places within or without the state, be
subject to the terms of redemption, contain the terms and conditions,
and be secured by the covenants as the indenture may provide. The
indenture may provide for the proceeds of the bonds and funds
securing the bonds to be invested in any securities and investments,
including investment agreements, as specified therein. CIGA may enter
into or authorize any ancillary obligations or derivative agreements
as it determines necessary or desirable to manage interest rate risk
or security features related to the bonds. The bonds shall be sold
at public or private sale by the Treasurer at, above, or below the
principal amount thereof, on the terms and conditions and for the
consideration in the medium of payment that the Treasurer shall
determine prior to the sale.