BILL NUMBER: SB 1408	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  AUGUST 2, 2010
	AMENDED IN ASSEMBLY  JUNE 29, 2010
	AMENDED IN ASSEMBLY  JUNE 1, 2010

INTRODUCED BY   Committee on Banking, Finance and Insurance (Senators
Calderon (Chair), Cogdill, Correa, Cox, Florez, Kehoe, Liu,
Lowenthal, Padilla, Price, and Runner)

                        FEBRUARY 19, 2010

   An act to amend Sections 1025.5, 1067.02, 1067.03, 1067.04,
1067.05, 1067.055, 1067.07, 1067.08, 1067.09, 1067.10, 1067.11,
1067.12, 1067.13, 1067.16, and 1067.17 of the Insurance Code,
relating to insurance, and declaring the urgency thereof, to take
effect immediately.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 1408, as amended, Committee on Banking, Finance and Insurance.
Insurance: California Life and Health Insurance Guarantee Association
Act.
   Existing law requires the formation of the California Life and
Health Insurance Guarantee Association to provide coverage for
persons for direct, nongroup life, health, annuity, and supplemental
policies or contracts of insurance, except as specified, in case of
failure in the performance of contractual obligations under policies
and contracts because of the impairment or insolvency of the member
insurer that issued the policies or contracts.
   This bill would revise and recast provisions of the act,
including, but not limited to, the powers and duties of the
association, coverage eligibility, the conditions and procedures for
payment of a claim, association reporting requirements, and other
related changes. The bill would also make various technical and
conforming changes. 
   This bill would provide that the amendments made to the California
Life and Health Insurance Guarantee Association Act by this act
shall not apply to any member insurer that, before the effective date
of this act, has been placed under an order of liquidation with a
finding of insolvency. 
   This bill would declare that it is to take effect immediately as
an urgency statute.
   Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


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

  SECTION 1.  Section 1025.5 of the Insurance Code is amended to
read:
   1025.5.  Notwithstanding the provisions of Sections 1021 to 1025,
inclusive, the commissioner may, in lieu of requiring claimants to
file separate claims:
   (a) File a claim himself or herself on behalf of all claimants for
return premiums.
   (b) Permit any assignee of the right of the insured to a return
premium by virtue of a valid assignment, as security or otherwise,
made prior to an order under Section 1011 or a seizure under Section
1013, whichever is earlier in time in the particular case, to file
one claim as assignee on behalf of all insureds having assigned
rights to the assignee, which shall set forth such information as may
be required under Section 1023.
   (c) Permit the California Insurance Guarantee Association under
subdivision (b) of Section 1063.4, or the California Life and Health
Insurance Guarantee Association under paragraph (1) of subdivision
(k) of Section 1067.07 to file one claim, for its association,
combining all assigned claims and setting forth the information that
the commissioner may require under Section 1023.
  SEC. 2.  Section 1067.02 of the Insurance Code is amended to read:
   1067.02.  (a) This article shall provide coverage for the policies
and contracts specified in subdivision (b) to all of the following:
   (1) To persons who, regardless of where they reside (except for
nonresident certificate holders under group policies or contracts),
are the beneficiaries, assignees, or payees of the persons covered
under paragraph (2).
   (2) To persons who are owners of or certificate holders under the
policies or contracts, other than structured settlement annuities,
and in each case who either:
   (A) Are residents of this state.
   (B) Are not residents, but only under all of the following
conditions:
   (i) The insurer that issued the policies or contracts is domiciled
in this state.
   (ii) The states in which the persons reside have associations
similar to the association created by this article.
   (iii) The persons are not eligible for coverage by the association
in their resident state due to the fact that the insurer was not
licensed in that state at the time specified in that state's guaranty
association law.
   (3) For structured settlement annuities specified in subdivision
(b), paragraphs (1) and (2) of this subdivision shall not apply, and
this article shall, except as provided in paragraphs (4) and (5) of
this subdivision, provide coverage to a person who is a payee under a
structured settlement annuity, or beneficiary of a payee if the
payee is deceased, if the payee is either:
   (A) A resident of this state, regardless of where the contract
owner resides.
   (B) Not a resident, but only if both of the following conditions
are satisfied:
   (i) The contract owner of the structured settlement annuity is a
resident, or the contract owner of the structured settlement annuity
is not a resident, but the insurer that issued the structured
settlement annuity is domiciled in this state, and the state in which
the contract owner resides has an association similar to the
association created by this article.
   (ii) Neither the payee, or beneficiary, nor the contract owner is
eligible for coverage by the association of the state in which the
payee or contract owner resides.
   (4) This article shall not provide coverage to a person who is a
payee, or beneficiary, of a contract owner resident of this state, if
the payee, or beneficiary, is afforded coverage by the association
of another state.
   (5) This article is intended to provide coverage to a person who
is a resident of this state and, in special circumstances, to a
nonresident. In order to avoid duplicate coverage, if a person who
would otherwise receive coverage under this article is provided
coverage under the laws of any other state, the person shall not be
provided coverage under this article. In determining the application
of the provisions of this paragraph in situations where a person
could be covered by the association of more than one state, whether
as an owner, payee, beneficiary, or assignee, this article shall be
construed in conjunction with other state laws to result in coverage
by only one association.
   (b) (1) This article shall provide coverage to the persons
specified in subdivision (a) for direct, nongroup life, health, or
annuity policies or contracts, and supplemental contracts to any of
these, and for certificates under direct group policies and
contracts, except as limited by this article. Annuity contracts and
certificates under group annuity contracts include allocated funding
agreements, structured settlement annuities, and any immediate or
deferred annuity contracts. The health policies and contracts covered
under this article include, but are not limited to, basic hospital,
medical, and surgical insurance, major medical insurance, disability
income insurance, disability insurance, including insurance
appertaining to injury, disablement, or death resulting to the
insured from accidents, and appertaining to disablements resulting to
the insured from sickness, and long-term care insurance, including
any net cash surrender and net cash withdrawal values.
   (2) This article shall not provide coverage for any of the
following:
   (A) Any portion of a policy or contract not guaranteed by the
insurer, or under which the risk is borne by the policy owner or
contract owner.
   (B) Any policy or contract of reinsurance, unless assumption
certificates have been issued pursuant to the reinsurance policy or
contract.
   (C) A portion of a policy or contract to the extent that the rate
of interest on which it is based or the interest rate, crediting
rate, or similar factor determined by the use of an index or other
external reference which is stated in the policy or contract and
employed in calculating returns or changes in value does both of the
following:
   (i) Averaged over the period of four years prior to the date on
which the member insurer becomes an impaired or insolvent insurer
under this article exceeds the rate of interest determined by
subtracting two percentage points from Moody's Corporate Bond Yield
Average averaged for that same four-year period or for the lesser
period if the policy or contract was issued less than four years
before the member insurer becomes an impaired or insolvent insurer
under this article, not to go below a minimum of 0 percent.
   (ii) On and after the date on which the member insurer becomes an
impaired or insolvent insurer under this article exceeds the rate of
interest determined by subtracting three percentage points from Moody'
s Corporate Bond Yield Average as most recently available, not to go
below a minimum of 0 percent.
   (D) An unallocated annuity contract.
   (E) A portion of a policy or contract issued to a plan or program
of an employer, association, or other person to provide life, health,
or annuity benefits to its employees, members, or others, to the
extent that the plan or program is self-funded or uninsured,
including, but not limited to, benefits payable by an employer,
association, or other person under any of the following:
   (i) A multiple employer welfare arrangement as defined in Section
1144 of Title 29 of the United States Code.
   (ii) A minimum premium group insurance plan.
   (iii) A stop-loss group insurance plan.
   (iv) An administrative services only contract.
   (F) A portion of a policy or contract to the extent that it
provides for any of the following:
   (i) Dividends or experience rating credits.
   (ii) Voting rights.
   (iii) Payment of any fees or allowances to any person, including
the policy or contract owner, in connection with the service to or
administration of the policy or contract.
   (G) Any policy or contract issued in this state by a member
insurer at a time when it was not licensed or did not have a
certificate of authority to issue the policy or contract in this
state.
   (H) Any annuity issued by a charitable organization that is duly
qualified as such under applicable provisions of the Internal Revenue
Code, and that is not engaged in the business of insurance as its
primary business.
   (I) A portion of a policy or contract to the extent that the
assessments required by Section 1067.08 with respect to the policy or
contract are preempted or otherwise not permitted by federal or
state law.
   (J) An obligation that does not arise under the express written
terms of the policy or contract issued by the insurer to the contract
owner or policy owner, including without limitation, any of the
following:
   (i) Claims based on marketing materials.
   (ii) Claims based on side letters, riders, or other documents that
were issued by the insurer without meeting applicable policy form
filing or approval requirements.
   (iii) Misrepresentations of, or regarding, policy benefits.
   (iv) Extracontractual claims.
   (v) A claim for penalties or consequential or incidental damages.
   (K) A contractual agreement that establishes the member insurer's
obligations to provide a book value accounting guaranty for defined
contribution benefit plan participants by reference to a portfolio of
assets that is owned by the benefit plan or its trustee, which in
each case is not an affiliate of the member insurer.
   (L) A portion of a policy or contract to the extent it provides
for interest or other changes in value to be determined by the use of
an index or other external reference stated in the policy or
contract, but which have not been credited to the policy or contract,
or as to which the policy or contract owner's rights are subject to
forfeiture, as of the date the member insurer becomes an impaired or
insolvent insurer under this article, whichever is earlier. If a
policy's or contract's interest or changes in value are credited less
frequently than annually, then for purposes of determining the
values that have been credited and are not subject to forfeiture
pursuant to this subparagraph, the interest or change in value
determined by using the procedures defined in the policy or contract
shall be credited as if the contractual date of crediting interest or
changing values was the date of impairment or insolvency, whichever
is earlier, and shall not be subject to forfeiture.
   (M) A policy or contract providing any hospital, medical,
prescription drug, or other health care benefits pursuant to Part C
of Title XVIII of the Social Security Act (42 U.S.C. Sec. 1395w-21 et
seq.) or Part D of Title XVIII of the Social Security Act (42 U.S.C.
Sec. 1395w-101 et seq.), commonly known as Medicare Parts C and D,
or any regulations issued pursuant thereto.
   (c) The benefits for which the association may become liable for
life insurance and annuity policies shall in no event exceed the
lesser of the following:
   (1) Eighty percent of the contractual obligations for each policy
or contract as modified pursuant to subparagraph (C) of paragraph (2)
of subdivision (b), for which the insurer is liable or would have
been liable if it were not an impaired or insolvent insurer.
   (2) (A) With respect to any one life, regardless of the number of
policies or contracts:
   (i) Three hundred thousand dollars ($300,000) in life insurance
death benefits, but not more than one hundred thousand dollars
($100,000) in net cash surrender and net cash withdrawal values for
life insurance.
   (ii) Two hundred fifty thousand dollars ($250,000) in the present
value of annuity benefits, including net cash surrender and net cash
withdrawal values.
   (B) With respect to each payee of a structured settlement annuity,
or beneficiaries of the payee if deceased, two hundred fifty
thousand dollars ($250,000) in present value annuity benefits, in the
aggregate, including net cash surrender and net cash withdrawal
values.
   (C) Notwithstanding subparagraphs (A) and (B), in no event shall
the association be obligated to cover more than an aggregate of three
hundred thousand dollars ($300,000) in benefits with respect to any
one life under subparagraphs (A) and (B).
   (D) Notwithstanding subparagraphs (A), (B), and (C), with respect
to one owner of multiple nongroup policies of life insurance, whether
the policy owner is an individual, firm, corporation, or other
person, and whether the persons insured are officers, managers,
employees, or other persons, in no event shall the association be
obligated to cover more than five million dollars ($5,000,000) in
benefits, regardless of the number of policies and contracts held by
the owner.
   (d) The health insurance benefits for which the association may
become liable shall in no event exceed the lesser of the following:
   (1) The contractual obligations for which the insurer is liable or
for which the insurer would have been liable if it were not an
impaired or insolvent insurer.
   (2) With respect to any one individual receiving health care
benefits, regardless of the number of policies or contracts, two
hundred thousand dollars ($200,000) in health insurance benefits; an
amount that shall increase or decrease based upon changes in the
health care cost component of the consumer price index from January
1, 1991, to the date on which the insurer becomes an insolvent
insurer.
   (e) The limitations set forth in subdivisions (c) and (d) are
limitations on the benefits for which the association is obligated
before taking into account either its subrogation and assignment
rights or the extent to which those benefits could be provided out of
the assets of the impaired or insolvent insurer attributable to
covered policies. The costs of the association's obligations under
this article may be met by the use of assets attributable to covered
policies or reimbursed to the association pursuant to its subrogation
and assignment rights.
   (f) In performing its obligations to provide coverage under
Section 1067.07, the association shall not be required to guarantee,
assume, reinsure, or perform, or cause to be guaranteed, assumed,
reinsured, or performed, the contractual obligations of the insolvent
or impaired insurer under a covered policy or contract that do not
materially affect the economic values or economic benefits of the
covered policy or contract.
  SEC. 3.  Section 1067.03 of the Insurance Code is amended to read:
   1067.03.  This article shall be liberally construed to effect the
purpose under Section 1067.01.
  SEC. 4.  Section 1067.04 of the Insurance Code is amended to read:
   1067.04.  As used in this article:
   (a) "Account" means either of the two accounts created under
Section 1067.05.
   (b) "Association" means the California Life and Health Insurance
Guarantee Association created pursuant to Section 1067.05.
   (c) "Authorized assessment" means an assessment, to be called
immediately or in the future from member insurers for a specified
amount, that is authorized by a resolution of the board of directors.
"Authorized," when used in the context of assessments, means
authorized by a resolution of the board of directors. An assessment
is authorized when this resolution is passed.
   (d) "Benefit plan" means a specific employee, union, or
association of natural persons benefit plan.
   (e) "Called assessment" means an assessment as to which a notice
has been issued by the association to member insurers requiring that
an authorized assessment be paid within a timeframe set forth in the
notice. "Called," when used in the context of assessments, means
required by notice to be paid by member insurers. An authorized
assessment becomes a called assessment when notice is mailed by the
association to member insurers.
   (f) "Commissioner" means the Insurance Commissioner.
   (g) "Contractual obligation" means any obligation under a policy
or contract, or certificate under a group policy or contract, or
portion thereof, for which coverage is provided under Section
1067.02.
   (h) "Covered policy" means a policy or contract or portion of a
policy or contract for which coverage is provided under Section
1067.02.
   (i) "Extracontractual claims" shall include, for example, claims
relating to bad faith in the payment of claims, punitive or exemplary
damages, or attorney's fees and costs.
   (j) "Impaired insurer" means a member insurer which, after the
effective date of this article, is not an insolvent insurer, and is
placed under an order of rehabilitation or conservation by a court of
competent jurisdiction.
   (k) "Insolvent insurer" means a member insurer that, after October
1, 1990, is placed under an order of liquidation by a court of
competent jurisdiction with a finding of insolvency.
   (l) "Member insurer" means any insurer licensed or which holds a
certificate of authority to transact in this state any kind of
insurance for which coverage is provided under Section 1067.02 and
includes any insurer whose license or certificate of authority in
this state may have been suspended, revoked, not renewed, or
voluntarily withdrawn, but does not include any of the following:
   (1) A hospital or medical service organization, whether for profit
or nonprofit.
   (2) A health maintenance organization.
   (3) A fraternal benefit society.
   (4) A mandatory state pooling plan.
   (5) A mutual assessment company or other person that operates on
an assessment basis.
   (6) An insurance exchange.
   (7) An organization that has a certificate or license limited to
the issuance of charitable gift annuities.
   (8) A grants and annuities society holding a certificate of
authority under Section 11520.
   (9) An entity similar to any of the above.
   (m) "Moody's Corporate Bond Yield Average" means the Monthly
Average Corporates as published by Moody's Investors Service, Inc.,
or any successor thereto.
   (n) "Owner" of a policy or contract and "policy owner" and
"contract owner" mean the person who is identified as the legal owner
under the terms of the policy or contract or who is otherwise vested
with legal title to the policy or contract through a valid
assignment completed in accordance with the terms of the policy or
contract and properly recorded as the owner on the books of the
insurer. The terms owner, contract owner, and policy owner do not
include persons with a mere beneficial interest in a policy or
contract.
   (o) "Person" means an individual, corporation, limited liability
company, partnership, association, governmental body or entity, or
voluntary organization.
   (p) "Plan sponsor" means any of the following:
   (1) The employer in the case of a benefit plan established or
maintained by a single employer.
   (2) The employee organization in the case of a benefit plan
established or maintained by an employee organization.
   (3) In a case of a benefit plan established or maintained by two
or more employers or jointly by one or more employers and one or more
employee organizations, the association, committee, joint board of
trustees, or other similar group of representatives of the parties
who establish or maintain the benefit plan.
   (q) (1) "Premiums" means amounts or considerations, by whatever
name called, received on covered policies or contracts less returned
premiums, considerations, and deposits and less dividends and
experience credits.
   (2) "Premiums" does not include amounts or considerations received
for policies or contracts or for the portions of policies or
contracts for which coverage is not provided under subdivision (b) of
Section 1067.02, except that assessable premium shall not be reduced
on account of subparagraph (C) of paragraph (2) of subdivision (b)
of Section 1067.02 relating to interest limitations and paragraph (2)
of subdivision (c) of Section 1067.02 relating to limitations with
respect to one individual, one participant, and one contract owner.
   (3) "Premiums" does not include any of the following:
   (A) Premiums on an unallocated annuity contract.
   (B) With respect to multiple nongroup policies of life insurance
owned by one owner, whether the policy owner is an individual, firm,
corporation, or other person, and whether the persons insured are
officers, managers, employees, or other persons, premiums in excess
of five million dollars ($5,000,000) with respect to these policies
or contracts, regardless of the number of policies or contracts held
by the owner.
   (r) (1) "Principal place of business" of a plan sponsor or a
person other than a natural person means the single state in which
the natural persons who establish policy for the direction, control,
and coordination of the operations of the entity as a whole primarily
exercise that function, determined by the association in its
reasonable judgment by considering all the following factors:
   (A) The state in which the primary executive and administrative
headquarters of the entity are located.
   (B) The state in which the principal office of the chief executive
officer of the entity is located.
   (C) The state in which the board of directors, or similar
governing persons, of the entity conducts the majority of its
meetings.
   (D) The state in which the executive or management committee of
the board of directors, or similar governing persons, of the entity
conducts the majority of its meetings.
   (E) The state from which the management of the overall operations
of the entity is directed.
   (F) In the case of a benefit plan sponsored by affiliated
companies comprising a consolidated corporation, the state in which
the holding company or controlling affiliate has its principal place
of business as determined using the above factors. However, in the
case of a plan sponsor, if more than 50 percent of the participants
in the benefit plan are employed in a single state, that state shall
be deemed to be the principal place of business of the plan sponsor.
   (2) The principal place of business of a plan sponsor of a benefit
plan shall be deemed to be the principal place of business of the
association, committee, joint board of trustees, or other similar
group of representatives of the parties who establish or maintain the
benefit plan that, in lieu of a specific or clear designation of a
principal place of business, shall be deemed to be the principal
place of business of the employer or employee organization that has
the largest investment in the benefit plan in question.
   (s) "Receivership court" means the court in the insolvent or
impaired insurer's state having jurisdiction over the conservation,
rehabilitation, or liquidation of the insurer.
   (t) "Resident" means a person to whom a contractual obligation is
owed and who resides in this state on the date of entry of a court
order that determines a member insurer to be an impaired insurer or a
court order that determines a member insurer to be an insolvent
insurer. A person may be a resident of only one state, which in the
case of a person other than a natural person shall be its principal
place of business. Citizens of the United States who are either
residents of foreign countries, or residents of United States'
possessions, territories, or protectorates that do not have an
association similar to the association created by this article shall
be deemed residents of the state of domicile of the insurer that
issued the policies or contracts.
   (u) "State" means a state, the District of Columbia, Puerto Rico,
and a United States possession, territory, or protectorate.
   (v) "Structured settlement annuity" means an annuity purchased in
order to fund periodic payments for a plaintiff or other claimant in
payment for, or with respect to, personal injury suffered by the
plaintiff or other claimant.
   (w) "Supplemental contract" means a written agreement entered into
for the distribution of proceeds under a life, health, or annuity
policy or a life, health, or annuity contract.
   (x) "Unallocated annuity contract" means an annuity contract or
group annuity certificate which is not issued to and owned by an
individual, except to the extent of any annuity benefits guaranteed
to an individual by an insurer under the contract or certificate.
  SEC. 5.  Section 1067.05 of the Insurance Code is amended to read:
   1067.05.  (a) A nonprofit legal entity to be known as the
California Life and Health Insurance Guarantee Association shall
exist as a result of the merger of the Seastrand Health Insurance
Guaranty Association with and into the California Life Insurance
Guaranty Association pursuant to Section 1067.055. All member
insurers shall be and remain members of the association as a
condition of their authority to transact insurance in this state. The
association shall perform its functions under the plan of operation
established and approved under Section 1067.09 and shall exercise its
powers through a board of directors established under Section
1067.06. For purposes of administration and assessment, the
association shall maintain the following two accounts:
   (1) The life insurance and annuity account which includes both of
the following subaccounts:
   (A) The life insurance account.
   (B) The annuity account, which shall include annuity contracts
owned by a governmental retirement plan, or its trustee, established
under Section 401, 403(b), or 457 of the Internal Revenue Code.
   (2) The health insurance account.
   (b) The association shall come under the immediate supervision of
the commissioner and shall be subject to the applicable provisions of
the insurance laws of this state. Meetings or records of the
association may be opened to the public upon majority vote of the
board of directors of the association.
  SEC. 6.  Section 1067.055 of the Insurance Code is amended to read:

   1067.055.  In order to provide for the merger of the Seastrand
Health Insurance Guaranty Association with and into the California
Life Insurance Guaranty Association, the following shall apply:
   (a) Notwithstanding the repeal of the California Life Insurance
Guaranty Association Act and the Seastrand Health Insurance Guaranty
Association Act, the Seastrand Health Insurance Guaranty Association
shall, effective immediately prior to that repeal, be merged with and
into the California Life Insurance Guaranty Association, which shall
then be known as the California Life and Health Insurance Guarantee
Association.
   (b) Notwithstanding the repeal of the California Life Insurance
Guaranty Association Act and the Seastrand Health Insurance Guaranty
Association Act, but subject to the last sentence of this
subdivision, all of the following shall apply:
   (1) The association shall succeed, without other transfer, to all
the rights, powers, privileges, assets, and property of each of the
California Life Insurance Guaranty Association and the Seastrand
Health Insurance Guaranty Association, which for the purposes of this
section shall be referred
collectively as the merging associations. The association shall be
subject to all debts, obligations, and liabilities of each merging
association in the same manner as if the association had itself
incurred them, in each case under the law in effect prior to the
effective date of this article, as those rights, powers, privileges,
obligations, debts, and liabilities may be amended and restated in
this article, and in each case with respect to member insurers that
became impaired insurers or insolvent insurers prior to the effective
date of this article and after October 1, 1990. Without limiting the
generality of the foregoing, the association shall succeed to (A)
all collected, uncollected, or unbilled assessments of the merging
associations, (B) all cash, bank accounts, and accrued interest of
the merging associations, (C) all rights, powers, privileges, and
obligations of the merging associations under any contracts or
commitments of the merging association, (D) all subrogations,
assignments, and creditor rights and interests of the merging
associations, and (E) all rights, powers, privileges, and obligations
of each of the trusts established on December 31, 1993, by each of
the merging associations as settlor.
   (2) All rights of creditors and all liens upon the property of
each of the merging associations shall be preserved unimpaired,
provided that the liens upon property of a merging association shall
be limited to the property affected thereby immediately prior to the
effective date of this article.
   (3) Any action or proceeding pending by or against a merging
association may be prosecuted to judgment, which shall bind the
association, or the association may be proceeded against or be
substituted in its place.
   Notwithstanding the other provisions of this subdivision, all
debts, obligations, and liabilities of a merging association that
were to be paid out of a specified account of the merging association
shall be paid solely out of the assets of that merging association
that were available to that merging association to pay those debts
and liabilities, including, without limitation, collected,
uncollected, or unbilled assessments, and any and all subrogation,
assignment, and creditor rights, or out of assets in the same type of
account of the association.
   (c) Notwithstanding any other provision to the contrary in this
article:
   (1) It is the intent of this section to preserve rights, powers,
privileges, assets, property, debts, obligations, and liabilities of
each of the merging associations, and not to provide contract owners
and policy owners, or their respective payees, beneficiaries, or
assignees, with duplicative rights, powers, privileges, assets, or
property.
   (2) Accordingly, no contract owner and policy owner, and no
contract owner's or policy owner's payee, beneficiary, or assignee,
shall be entitled to (A) a recovery from the association that is
duplicative of a previous recovery from either of the merging
associations, or the trust established by either merging association,
or (B) a recovery from the association on account of a claim against
either of the merging associations where the association is liable
with respect to a claim under the same policy or contract under this
article.
  SEC. 7.  Section 1067.07 of the Insurance Code is amended to read:
   1067.07.  (a) If a member insurer is an impaired insurer, the
association may, in its discretion, and subject to any conditions
imposed by the association that do not impair the contractual
obligations of the impaired insurer and that are approved by the
commissioner, do any of the following:
   (1) Guarantee, assume, or reinsure, or cause to be guaranteed,
assumed, or reinsured, any or all of the policies or contracts of the
impaired insurer.
   (2) Provide moneys, pledges, loans, notes, guarantees, or other
means as are proper to effectuate paragraph (1) and assure payment of
the contractual obligations of the impaired insurer pending action
under paragraph (1).
   (b) If a member insurer is an insolvent insurer, the association
shall, in its discretion, either do those things described in
paragraph (1) or in paragraph (2):
   (1) (A) Guarantee, assume, or reinsure, or cause to be guaranteed,
assumed, or reinsured, the policies or contracts of the insolvent
insurer; or
   (B) Assure payment of the contractual obligations of the insolvent
insurer; and
   (C) Provide moneys, pledges, loans, notes, guarantees, or other
means reasonably necessary to discharge the association's duties.
   (2) Provide benefits and coverages in accordance with the
following provisions:
   (A) With respect to life and health insurance policies and
annuities, assure payment of benefits for premiums identical to the
premiums and benefits, except for terms of conversion and
renewability, that would have been payable under the policies or
contracts of the insolvent insurer, for claims incurred:
   (i) With respect to group policies and contracts, not later than
the earlier of the next renewal date under those policies or
contracts or 45 days, but in no event less than 30 days, after the
date on which the association becomes obligated with respect to the
policies and contracts.
   (ii) With respect to nongroup policies, contracts, and annuities,
not later than the earlier of the next renewal date, if any, under
the policies or contracts or one year, but in no event less than 30
days, from the date on which the association becomes obligated with
respect to the policies or contracts.
   (B) Make diligent efforts to provide all known insureds or
annuitants, for nongroup policies and contracts, or group policy
owners with respect to group policies and contracts, 30 days' notice
of the termination, pursuant to subparagraph (A), of the benefits
provided.
   (C) With respect to nongroup life and health insurance policies
and annuities covered by the association, make available to each
known insured or annuitant, or owner if other than the insured or
annuitant, and with respect to an individual formerly insured or
formerly an annuitant under a group policy who is not eligible for
replacement group coverage, make available substitute coverage on an
individual basis in accordance with the provisions of subparagraph
(D), if the insureds or annuitants had a right under law or the
terminated policy or annuity to convert coverage to individual
coverage or to continue an individual policy or annuity in force
until a specified age or for a specified time, during which the
insurer had no right unilaterally to make changes in any provision of
the policy or annuity or had a right only to make changes in premium
by class.
   (D) (i) In providing the substitute coverage required under
subparagraph (C), the association may offer either to reissue the
terminated coverage or to issue an alternative policy and shall
consider obtaining coverage for a medically uninsurable person from
the program established under Part 6.5 (commencing with Section
12700) of Division 2.
   (ii) Alternative or reissued policies shall be offered without
requiring evidence of insurability, and shall not provide for any
waiting period or exclusion that would not have applied under the
terminated policy.
   (iii) The association may reinsure any alternative or reissued
policy.
   (E) (i) Alternative policies adopted by the association shall be
subject to the approval of the commissioner. The association may
adopt alternative policies of various types for future issuance
without regard to any particular impairment or insolvency.
   (ii) Alternative policies shall contain at least the minimum
statutory provisions required in this state and provide benefits that
shall not be unreasonable in relation to the premium charged. The
association shall set the premium in accordance with a table of rates
which it shall adopt. The premium shall reflect the amount of
insurance to be provided and the age and class of risk of each
insured, but shall not reflect any changes in the health of the
insured after the original policy was last underwritten.
   (iii) Any alternative policy issued by the association shall
provide coverage of a type similar to that of the policy issued by
the impaired or insolvent insurer, as determined by the association.
   (F) If the association elects to reissue terminated coverage at a
premium rate different from that charged under the terminated policy,
the premium shall be set by the association in accordance with the
amount of insurance provided and the age and class of risk, subject
to approval of the commissioner or by a court of competent
jurisdiction.
   (G) The association's obligations with respect to coverage under
any policy of the impaired or insolvent insurer or under any reissued
or alternative policy shall cease on the date the coverage or policy
is replaced by another similar policy by the policy owner, the
insured, or the association.
   (H) When proceeding under this paragraph with respect to a policy
or contract carrying guaranteed minimum interest rates, the
association shall assure the payment or crediting of a rate of
interest consistent with subparagraph (C) of paragraph (2) of
subdivision (b) of Section 1067.02.
   (c) Nonpayment of premiums within 31 days after the date required
under the terms of any guaranteed, assumed, alternative, or reissued
policy or contract or substitute coverage shall terminate the
association's obligations under the policy or coverage under this
article with respect to that policy or coverage, except with respect
to any claims incurred or any net cash surrender value which may be
due in accordance with the provisions of this article.
   (d) Premiums due for coverage after entry of an order of
liquidation of an insolvent insurer shall belong to and be payable at
the direction of the association, and the association shall be
liable for unearned premiums due to policy or contract owners arising
after the entry of that order.
   (e) The protection provided by this article shall not apply where
any guarantee protection is provided to residents of this state by
the laws of the domiciliary state or jurisdiction of the impaired or
insolvent insurer other than this state.
   (f) In carrying out its duties under subdivision (b), the
association may, subject to approval by a court of competent
jurisdiction, do either of the following:
   (1) Impose permanent policy or contract liens in connection with
any guarantee, assumption, or reinsurance agreement, if the
association finds that the amounts which can be assessed under this
article are less than the amounts needed to assure full and prompt
performance of the association's duties under this article, or that
the economic or financial conditions as they affect member insurers
are sufficiently adverse to render the imposition of the permanent
policy or contract liens, to be in the public interest.
   (2) Impose temporary moratoriums or liens on payments of cash
values and policy loans, or any other right to withdraw funds held in
conjunction with policies or contracts, in addition to any
contractual provisions for deferral of cash or policy loan value. In
addition, in the event of a temporary moratorium or moratorium charge
imposed by the receivership court on payment of cash values or
policy loans, or on any other right to withdraw funds held in
conjunction with policies or contracts, out of the assets of the
impaired or insolvent insurer, the association may defer the payment
of cash values, policy loans, or other rights by the association for
the period of the moratorium or moratorium charge imposed by the
receivership court, except for claims covered by the association to
be paid in accordance with a hardship procedure established by the
liquidator or rehabilitator and approved by the receivership court.
   (g) A deposit in this state, held pursuant to law or required by
the commissioner for the benefit of creditors, including policy
owners, not turned over to the domiciliary liquidator upon the entry
of a final order of liquidation or order approving a rehabilitation
plan of an insurer domiciled in this state or in a reciprocal state
shall be promptly paid to the association. The association shall be
entitled to retain a portion of any amount so paid to it equal to the
percentage determined by dividing the aggregate amount of policy
owners' claims related to that insolvency for which the association
has provided statutory benefits by the aggregate amount of all policy
owners' claims in this state related to that insolvency and shall
remit to the domiciliary receiver the amount so paid to the
association less the amount retained pursuant to this subdivision.
Any amount so paid to the association and retained by it shall be
treated as a distribution of estate assets pursuant to applicable
state receivership law dealing with early access disbursements.
   (h) If the association fails to act within a reasonable period of
time with respect to an insolvent insurer, as provided in subdivision
(b), the commissioner shall have the powers and duties of the
association under this article with respect to the insolvent insurer.

   (i) The association may render assistance and advice to the
commissioner, upon his or her request, concerning rehabilitation,
payment of claims, continuance of coverage, or the performance of
other contractual obligations of any impaired or insolvent insurer.
   (j) The association shall have standing to appear or intervene
before a court or agency engaged in an adjudication in this state
with jurisdiction over an impaired or insolvent insurer concerning
which the association is or may become obligated under this article
or with jurisdiction over any person or property against which the
association may have rights through subrogation or otherwise.
Standing shall extend to all matters germane to the powers and duties
of the association, including, but not limited to, proposals for
reinsuring, modifying, or guaranteeing the policies or contracts of
the impaired or insolvent insurer and the determination of the
policies or contracts and contractual obligations. The association
shall also have the right to appear or intervene before a court or
agency in another state with jurisdiction over an impaired or
insolvent insurer for which the association is or may become
obligated or with jurisdiction over any person or property against
which the association may have rights through subrogation or
otherwise.
   (k) (1) Any person receiving benefits under this article shall be
deemed to have assigned the rights under, and any causes of action
against any person for losses arising under, resulting from, or
otherwise relating to, the covered policy or contract to the
association to the extent of the benefits received because of this
article, whether the benefits are payments of or on account of
contractual obligations, continuation of coverage, or provision of
substitute or alternative coverages. The association may require an
assignment to it of those rights and cause of action by any payee,
policy or contract owner, beneficiary, insured, or annuitant as a
condition precedent to the receipt of any right or benefits conferred
by this article upon that person.
   (2) The subrogation rights of the association under this
subdivision shall have the same priority against the assets of the
impaired or insolvent insurer as that possessed by the person
entitled to receive benefits under this article.
   (3) In addition to paragraphs (1) and (2), the association shall
have all common law rights of subrogation and any other equitable or
legal remedy that would have been available to the impaired or
insolvent insurer or owner, beneficiary, or payee of a policy or
contract with respect to the policy or contracts, including without
limitation, in the case of a structured settlement annuity, any
rights of the owner, beneficiary, or payee of the annuity, to the
extent of benefits received pursuant to this article, against a
person originally or by succession responsible for the losses arising
from the personal injury relating to the annuity or payment
therefor, excepting any person responsible solely by reason of
serving as an assignee in respect of a qualified assignment under
Section 130 of the Internal Revenue Code.
   (4) If the preceding provisions of this subdivision are invalid or
ineffective with respect to any person or claim for any reason, the
amount payable by the association with respect to the related covered
obligations shall be reduced by the amount realized by any other
person with respect to the person or claim that is attributable to
the policies, or portion thereof, covered by the association.
   (5) If the association has provided benefits with respect to a
covered obligation and a person recovers amounts as to which the
association has rights as described in the preceding paragraphs of
this subdivision, the person shall pay to the association the portion
of the recovery attributable to the policies, or portion thereof,
covered by the association.
   (l) In addition to the rights and powers elsewhere in this
article, the association may do any of the following:
   (1) Enter into contracts as are necessary or proper to carry out
the provisions and purposes of this article.
   (2) Sue or be sued, including taking any legal actions necessary
or proper to recover any unpaid assessments under Section 1067.08 and
to settle claims or potential claims against it.
   (3) Borrow money to effect the purposes of this article. Any notes
or other evidence of indebtedness of the association not in default
shall be legal investments for domestic insurers and may be carried
as admitted assets.
   (4) Employ or retain an executive director and other persons to
handle the financial transactions of the association, and to perform
other functions necessary or proper under this article, provided that
the executive director shall be subject to the approval of the
commissioner.
   (5) Take such legal action as may be necessary or appropriate to
avoid or recover payment of improper claims.
   (6) Exercise, for the purposes of this article and to the extent
approved by the commissioner, the powers of a domestic life or health
insurer, but in no case may the association issue insurance policies
or annuity contracts other than those issued to perform its
obligations under this article.
   (7) Organize itself as a corporation or in another legal form
permitted by the laws of the state.
   (8) Request information from a person seeking coverage from the
association in order to aid the association in determining its
obligations under this article with respect to the person, and the
person shall promptly comply with the request.
   (9) Take other necessary or appropriate action to discharge its
duties and obligations under this article or to exercise its powers
under this article.
   (m) The association may join an organization of one or more other
state associations of similar purposes, to further the purposes and
administer the powers and duties of the association.
   (n) There shall be no liability on the part of and no cause of
action shall arise against the association or against any transferee
from the association in connection with the transfer by reinsurance
or otherwise of all or any part of an impaired or insolvent insurer's
business by reason of any action taken or any failure to take any
action by the impaired or insolvent insurer at any time.
   (o) With respect to covered policies for which the association
becomes obligated after an entry of an order or liquidation or
rehabilitation, the association may elect to succeed to the rights of
the insolvent insurer arising after the date of the order of
liquidation or rehabilitation under any contract of reinsurance to
which the insolvent insurer was a party, to the extent that the
contract provides coverage for losses occurring after the date of the
order of liquidation or rehabilitation. As a condition to making
this election, the association must pay all unpaid premiums due under
the contract for coverage relating to periods before and after the
date of the order of liquidation or rehabilitation.
   (p) The board of directors of the association shall have
discretion and may exercise reasonable business judgment to determine
the means by which the association is to provide the benefits of
this article in an economical and efficient manner.
   (q) Where the association has arranged or offered to provide the
benefits of this article to a covered person under a plan or
arrangement that fulfills the association's obligations under this
article, the person shall not be entitled to benefits from the
association in addition to or other than those provided under the
plan or arrangement.
   (r) The association shall not be required to give an appeal bond
in an appeal that relates to a cause of action arising under this
article.
   (s) In carrying out its duties in connection with guaranteeing,
assuming, or reinsuring policies or contracts under subdivision (a)
or (b), the association may, subject to approval of the receivership
court, issue substitute coverage for a policy or contract that
provides an interest rate, crediting rate, or similar factor
determined by use of an index or other external reference stated in
the policy or contract employed in calculating returns or changes in
value by issuing an alternative policy or contract in accordance with
all of the following provisions:
   (1) In lieu of the index or other external reference provided for
in the original policy or contract, the alternative policy or
contract provides for a fixed interest rate, payment of dividends
with minimum guarantees, or a different method for calculating
interest or changes in value.
   (2) There is no requirement for evidence of insurability, waiting
period, or other exclusion that would not have applied under the
replaced policy or contract.
   (3) The alternative policy or contract is substantially similar to
the replaced policy or contract in all other material terms.
  SEC. 8.  Section 1067.08 of the Insurance Code is amended to read:
   1067.08.  (a) For the purpose of providing the funds necessary to
carry out the powers and duties of the association, the board of
directors shall assess the member insurers, separately for each
account, at the time and for the amounts as the board finds
necessary. Assessments shall be due not more than 30 days after prior
written notice to the member insurers and shall accrue interest at
the rate of 10 percent per annum on and after the due date.
   (b) There shall be two classes of assessments, as follows:
   (1) Class A assessments shall be authorized and called for the
purpose of meeting administrative and legal costs and other expenses
and examinations conducted under the authority of subdivision (e) of
Section 1067.11. Class A assessments may be authorized and called
whether or not related to a particular impaired or insolvent insurer.

   (2) Class B assessments shall be authorized and called to the
extent necessary to carry out the powers and duties of the
association under Section 1067.07 with regard to an impaired or an
insolvent insurer.
   (c) (1) The amount of any class A assessment shall be determined
at the discretion of the board of directors and such assessments
shall be authorized and called on a non pro rata basis. The amount of
any class B assessment shall be allocated for assessment purposes
among the accounts pursuant to an allocation formula that may be
based on the premiums or reserves of the impaired or insolvent
insurer or any other standard deemed by the board in its sole
discretion as being fair and reasonable under the circumstances.
   (2) Class B assessments against member insurers for each account
shall be in the proportion that the premiums received on business in
this state by each assessed member insurer on policies or contracts
covered by each account for the three most recent calendar years for
which information is available preceding the year in which the
insurer became impaired or insolvent, as the case may be, bears to
premiums received on business in this state for those calendar years
by all assessed member insurers.
   (3) Assessments for funds to meet the requirements of the
association with respect to an impaired or insolvent insurer shall
not be authorized and called until necessary to implement the
purposes of this article. Classification of assessments under
subdivision (b) and computation of assessments under this subdivision
shall be made with a reasonable degree of accuracy, recognizing that
exact determinations may not always be possible. The association
shall notify each member insurer of its anticipated pro rata share of
an authorized assessment not yet called within 180 days after the
assessment is authorized.
   (d) The association may abate or defer, in whole or in part, the
assessment of a member insurer if, in the opinion of the board,
payment of the assessment would endanger the ability of the member
insurer to fulfill its contractual obligations. In the event an
assessment against a member insurer is abated, or deferred in whole
or in part, the amount by which that assessment is abated or deferred
may be assessed against the other member insurers in a manner
consistent with the basis for assessments set forth in this section.
Once the conditions that caused a deferral have been removed or
rectified, the member insurer shall pay all assessments that were
deferred pursuant to a repayment plan approved by the association.
   (e) (1) (A) Subject to the provisions of subparagraph (B), the
total of all assessments authorized by the association with respect
to a member insurer for each subaccount of the life insurance and
annuity account and for the health account shall not in one calendar
year exceed 2 percent of that member insurer's average annual
premiums received in this state on the policies and contracts covered
by the subaccount or account during the three calendar years
preceding the year in which the insurer became an impaired or
insolvent insurer.
   (B) If two or more assessments are authorized in one calendar year
with respect to insurers that become impaired or insolvent in
different calendar years, the average annual premiums for purposes of
the aggregate assessment percentage limitation referenced in
subparagraph (A) shall be equal and limited to the higher of the
three-year average annual premiums for the applicable subaccount or
account as calculated pursuant to this section.
   (C) If the maximum assessment, together with the other assets of
the association in an account, does not provide in one year in either
account an amount sufficient to carry out the responsibilities of
the association, the necessary additional funds shall be assessed as
soon thereafter as
permitted by this article.
   (2) The board may provide in the plan of operation a method of
allocating funds among claims, whether relating to one or more
impaired or insolvent insurers, when the maximum assessment will be
insufficient to cover anticipated claims.
   (f) The board may, by an equitable method as established in the
plan of operation, refund to member insurers, in proportion to the
contribution of each insurer to that account, the amount by which the
assets of the account exceed the amount the board finds is necessary
to carry out during the coming year the obligations of the
association with regard to that account, including assets accruing
from assignment, subrogation, net realized gains, and income from
investments. A reasonable amount may be retained in any account to
provide funds for the continuing expenses of the association and for
future losses.
   (g) It shall be proper for any member insurer, in determining its
premium rates and policy owner dividends as to any kind of insurance
within the scope of this article, to consider the amount reasonably
necessary to meet its assessment obligations under this article.
   (h) The association shall issue to each insurer paying an
assessment under this article, other than class A assessment, a
certificate of contribution, in a form prescribed by the
commissioner, for the amount of the assessment so paid. All
outstanding certificates shall be of equal dignity and priority
without reference to amounts or date of issue. A certificate of
contribution may be shown by the insurer in its financial statement
as an asset in the form and for the amount, if any, and period of
time as the commissioner may approve.
   (i) (1) Subject to the provisions of paragraph (3), the plan of
operation adopted pursuant to Section 1067.09 shall contain
provisions whereby each member insurer may recoup over a reasonable
length of time a sum reasonably calculated to recoup the assessments
with respect to the health insurance account paid by the member
insurer under this article by way of a surcharge on premiums charged
for health insurance policies to which this article applies. Amounts
recouped shall not be considered premiums for any other purpose,
including the computation of gross premium tax or agent's commission.

   (2) Member insurers who collect surcharges in excess of
assessments paid pursuant to this section for an insolvent insurer
shall remit the excess to the association as an additional assessment
within 120 days after the end of the collection period as determined
by the association. The excess shall be applied to reduce future
health insurance account assessments for that insurer.
   (3) The plan of operation may permit a member insurer to omit the
collection of the surcharge from its insureds when it determines the
amount of the surcharge collectible from each insured would be
unreasonably small in relation to the potential confusion of or
objection by the insureds even if the aggregate surcharges
collectible from all insureds exceeds the expense of collection.
   (j) Any statement of the amount of surcharge provided by the
association shall include a description of, and purpose for, the
California Life and Health Insurance Guarantee Association, as
follows:


   "Companies writing health insurance business in California are
required to participate in the California Life and Health Insurance
Guarantee Association. If a company writing health insurance becomes
insolvent, the California Life and Health Insurance Guarantee
Association settles unpaid claims and assesses each insurance company
for its fair share."
   "California law allows all companies to surcharge policies to
recover these assessments. If your policy is surcharged, "CA
Surcharge" with an amount will be displayed on your premium notice."


   (k) (1) A member insurer that wishes to protest all or part of an
assessment shall pay when due the full amount of the assessment as
set forth in the notice provided by the association. The payment
shall be available to meet association obligations during the
pendency of the protest or any subsequent appeal. Payment shall be
accompanied by a statement in writing that the payment is made under
protest and setting forth a brief statement of the grounds for the
protest.
   (2) Within 60 days following the payment of an assessment under
protest by a member insurer, the association shall notify the member
insurer in writing of its determination with respect to the protest
unless the association notifies the member insurer that additional
time is required to resolve the issues raised by the protest.
   (3) Within 30 days after a final decision has been made, the
association shall notify the protesting member insurer in writing of
that final decision. Within 60 days of receipt of notice of the final
decision, the protesting member insurer may appeal that final action
to the commissioner.
   (4) In the alternative to rendering a final decision with respect
to a protest based on a question regarding the assessment base, the
association may refer protests to the commissioner for a final
decision, with or without a recommendation from the association.
   (5) If the protest or appeal on the assessment is upheld, the
amount paid in error or excess shall be returned to the member
company. Interest on a refund due a protesting member shall be paid
at the rate actually earned by the association.
   (l) The association may request information of member insurers in
order to aid in the exercise of its power under this section, and
member insurers shall promptly comply with a request.
  SEC. 9.  Section 1067.09 of the Insurance Code is amended to read:
   1067.09.  (a) (1) The association shall submit to the commissioner
a plan of operation and any amendments thereto necessary or suitable
to ensure the fair, reasonable, and equitable administration of the
association. The plan of operation and any amendments thereto shall
become effective upon the commissioner's written approval or unless
he or she has not disapproved it within 30 days.
   (2) If the association fails to submit a suitable plan of
operation within 120 days following the effective date of this
article or if at any time thereafter the association fails to submit
suitable amendments to the plan, the commissioner shall, after notice
and hearing, adopt and promulgate those reasonable rules as are
necessary or advisable to effectuate the provisions of this article.
The rules shall continue in force until modified by the commissioner
or superseded by a plan submitted by the association and approved by
the commissioner.
   (b) All member insurers shall comply with the plan of operation.
   (c) The plan of operation shall, in addition to requirements
enumerated elsewhere in this article, do all of the following:
   (1) Establish procedures for handling the assets of the
association.
   (2) Establish the amount and method of reimbursing members of the
board of directors under Section 1067.06.
   (3) Establish regular places and times for meetings including
telephone conference calls of the board of directors.
   (4) Establish procedures for records to be kept of all financial
transactions of the association, its agents, and the board of
directors.
   (5) Establish the procedure whereby selections for the board of
directors will be made and submitted to the commissioner.
   (6) Establish any additional procedures for assessments under
Section 1067.08.
   (7) Contain additional provisions necessary or proper for the
execution of the powers and duties of the association.
   (8) Establish procedures whereby a director may be removed for
cause, including in the case where a member insurer director becomes
an impaired or insolvent insurer.
   (9) Require the board of directors to establish a policy and
procedures for addressing conflicts of interests.
   (d) The plan of operation may provide that any or all powers and
duties of the association, including its administration, except those
under paragraph (3) of subdivision (l) of Section 1067.07 and
Section 1067.08, are delegated to a corporation, association, or
other organization which performs or will perform functions similar
to those of this association, or its equivalent, in two or more
states. That corporation, association, or organization shall be
reimbursed for any payments made on behalf of the association and
shall be paid for its performance of any function of the association.
A delegation under this subdivision shall take effect only with the
approval of both the board of directors and the commissioner, and may
be made only to a corporation, association, or organization which
extends protection not substantially less favorable and effective
than that provided by this article.
  SEC. 10.  Section 1067.10 of the Insurance Code is amended to read:

   1067.10.  In addition to the duties and powers enumerated
elsewhere in this article:
   (a) The commissioner shall do all of the following:
   (1) Upon request of the board of directors, provide the
association with a statement of the premiums in this and any other
appropriate states for each member insurer.
   (2) When an impairment is declared and the amount of the
impairment is determined, serve a demand upon the impaired insurer to
make good the impairment within a reasonable time; notice to the
impaired insurer shall constitute notice to its shareholders, if any;
the failure of the insurer to promptly comply with such demand shall
not excuse the association from the performance of its powers and
duties under this article.
   (3) In any liquidation or rehabilitation proceeding involving a
domestic insurer, be appointed as the liquidator or rehabilitator.
   (b) The commissioner may suspend or revoke, after notice and
hearing, the certificate of authority to transact insurance in this
state of any member insurer which fails to pay an assessment when due
or fails to comply with the plan of operation. As an alternative the
commissioner may levy a forfeiture on any member insurer which fails
to pay an assessment when due. The forfeiture shall not exceed 5
percent of the unpaid assessment per month, but no forfeiture shall
be less than one hundred dollars ($100) per month.
   (c) A final action of the board of directors or the association
may be appealed to the commissioner by a member insurer if the appeal
is taken within 60 days of its receipt of notice of the final action
being appealed. A final action or order of the commissioner shall be
subject to judicial review in a court of competent jurisdiction in
accordance with the laws of this state that apply to the actions or
orders of the commissioner.
   (d) The liquidator, rehabilitator, or conservator of any impaired
insurer or insolvent insurer may notify all interested persons of the
effect of this article.
  SEC. 11.  Section 1067.11 of the Insurance Code is amended to read:

   1067.11.  To aid in the detection and prevention of insurer
insolvencies or impairments:
   (a) It shall be the duty of the commissioner to do the following:
   (1) To notify the commissioners of all the other states,
territories of the United States, and the District of Columbia when
he or she takes any of the following actions against a member
insurer:
   (A) Revocation of license.
   (B) Suspension of license.
   (C) Makes any formal order that the company restrict its premium
writing, obtain additional contributions to surplus, withdraw from
the state, reinsure all or any part of its business, or increase
capital, surplus, or any other account for the security of policy
owners or creditors.
   The notice shall be mailed to all commissioners within 30 days
following the action taken or the date on which the action occurs.
   (2) To report to the board of directors, the Legislature, and the
Governor when he or she has taken any of the actions set forth in
paragraph (1) or has received a report from any other commissioner
indicating that any action has been taken in another state. The
report to the board of directors, the Legislature, and the Governor
shall contain all significant details of the action taken on the
report received from another commissioner.
   (3) To report to the board of directors when he or she has
reasonable cause to believe from any examination, whether completed
or in process, of any member company that the company may be an
impaired or insolvent insurer.
   (4) To furnish to the board of directors the NAIC Insurance
Regulatory Information System (IRIS) ratios and listings of companies
not included in the ratios developed by the National Association of
Insurance Commissioners, and the board may use the information
contained therein in carrying out its duties and responsibilities
under this section. The report and the information contained therein
shall be kept confidential by the board of directors until that time
as it is made public by the commissioner or other lawful authority.
   (b) The commissioner may seek the advice and recommendations of
the board of directors concerning any matter affecting his or her
duties and responsibilities regarding the financial condition of
member insurers and companies seeking admission to transact insurance
business in this state.
   (c) The board of directors may, upon majority vote, make reports
and recommendations to the commissioner upon any matter germane to
the solvency, liquidation, rehabilitation, or conservation of any
member insurer or germane to the solvency of any company seeking to
do an insurance business in this state. Those reports and
recommendations shall not be considered public documents.
   (d) The board of directors shall, upon majority vote, notify the
commissioner of any information indicating a member insurer may be an
impaired or insolvent insurer.
   (e) The board of directors may, upon majority vote, request that
the commissioner order an examination of any member insurer which the
board in good faith believes may be an impaired or insolvent
insurer. Within 30 days of the receipt of the request, the
commissioner shall begin the examination. The examination may be
conducted as a National Association of Insurance Commissioners
examination or may be conducted by persons that the commissioner
designates. The cost of the examination shall be paid by the
association and the examination report shall be treated as are other
examination reports. In no event shall the examination report be
released to the board of directors prior to its release to the
public, but this shall not preclude the commissioner from complying
with subdivision (a).
   The commissioner shall notify the board of directors when the
examination is completed. The request for an examination shall be
kept on file by the commissioner but it shall not be open to public
inspection prior to the release of the examination report to the
public.
   (f) The board of directors may, upon majority vote, make
recommendations to the commissioner for the detection and prevention
of insurer insolvencies.
   (g) Reports, information, and recommendations from the board to
the commissioner and from the commissioner to the board under this
section shall be treated as confidential and shall not be considered
public documents except as otherwise specifically provided in this
section or by specific action of the board or commissioner.
  SEC. 12.  Section 1067.12 of the Insurance Code is amended to read:

   1067.12.  (a) This article shall not be construed to reduce the
liability for unpaid assessments of the insureds of an impaired or
insolvent insurer operating under a plan with assessment liability.
   (b) Records shall be kept of all meetings of the board of
directors to discuss the activities of the association in carrying
out its powers and duties under Section 1067.07. The records of the
association with respect to an impaired or insolvent insurer shall
not be disclosed to the public prior to the termination of a
liquidation, rehabilitation, or conservation proceeding involving the
impaired or insolvent insurer, except upon the termination of the
impairment or insolvency of the insurer, or upon the order of a court
of competent jurisdiction. Nothing in this subdivision shall limit
the duty of the association to render a report of its activities
under Section 1067.13.
   (c) For the purpose of carrying out its obligations under this
article, the association shall be deemed to be a creditor of the
impaired or insolvent insurer to the extent of assets attributable to
covered policies reduced by any amounts to which the association is
entitled as subrogee pursuant to Section 1067.07. Assets of the
impaired or insolvent insurer attributable to covered policies shall
be used to continue all covered policies and pay all contractual
obligations of the impaired or insolvent insurer as required by this
article. Assets attributable to covered policies, as used in this
subdivision, are that proportion of the assets which the reserves
that should have been established for those policies bear to the
reserves that should have been established for all policies of
insurance written by the impaired or insolvent insurer.
   (d) As a creditor of the impaired or insolvent insurer as
established in subdivision (c) and consistent with Section 1035.5,
the association and other similar associations shall be entitled to
receive a disbursement of assets out of the marshaled assets, from
time to time as the assets become available to reimburse it, as a
credit against contractual obligations under this article. If the
liquidator has not, within 120 days of an order directing the
liquidation of the business of an insolvent insurer or a final
determination of insolvency of an insurer by the receivership court,
made an application to the court for the approval of a proposal to
disburse assets out of marshaled assets to guaranty associations
having obligations because of the insolvency, then the association
shall be entitled to make application to the receivership court for
approval of its own proposal to disburse these assets.
   (e) (1) Prior to the termination of any liquidation,
rehabilitation, or conservation proceeding, the court may take into
consideration the contributions of the respective parties, including
the association, the shareholders, and policy owners of the insolvent
insurer, and any other party with a bona fide interest, in making an
equitable distribution of the ownership rights of the insolvent
insurer. In the determination, consideration shall be given to the
welfare of the policy owners of the continuing or successor insurer.
   (2) No distribution to stockholders, if any, of an impaired or
insolvent insurer shall be made until and unless the total amount of
valid claims of the association with interest thereon for funds
expended in carrying out its powers and duties under Section 1067.07
with respect to the insurer have been fully recovered by the
association.
   (f) (1) If an order for liquidation or rehabilitation of an
insurer domiciled in this state has been entered, the receiver
appointed under the order shall have a right to recover on behalf of
the insurer, from any affiliate that controlled it, the amount of
distributions, other than stock dividends paid by the insurer on its
capital stock, made at any time during the five years preceding the
petition for liquidation or rehabilitation subject to the limitations
of paragraphs (2) to (4), inclusive.
   (2) No such distribution shall be recoverable if the insurer shows
that when paid the distribution was lawful and reasonable, and that
the insurer did not know and could not reasonably have known that the
distribution might adversely affect the ability of the insurer to
fulfill its contractual obligations.
   (3) Any person who was an affiliate that controlled the insurer at
the time the distributions were paid shall be liable up to the
amount of distributions he or she received. Any person who was an
affiliate that controlled the insurer at the time the distributions
were declared shall be liable up to the amount of distributions he or
she would have received if they had been paid immediately. If two or
more persons are liable with respect to the same distributions, they
shall be jointly and severally liable.
   (4) The maximum amount recoverable under this subdivision shall be
the amount needed in excess of all other available assets of the
insolvent insurer to pay the contractual obligations of the insolvent
insurer.
   (5) If any person liable under paragraph (3) is insolvent, all its
affiliates that controlled it at the time the distribution was paid
shall be jointly and severally liable for any resulting deficiency in
the amount recovered from the insolvent affiliate.
  SEC. 13.  Section 1067.13 of the Insurance Code is amended to read:

   1067.13.  The association shall be subject to examination and
regulation by the commissioner. The board of directors shall submit
to the commissioner, the Governor, and the Legislature each year, not
later than 120 days after the association's fiscal year, a financial
report in a form approved by the commissioner and a report of its
activities during the preceding fiscal year. Upon the request of a
member insurer, the association shall provide the member insurer with
a copy of the report.
  SEC. 14.  Section 1067.16 of the Insurance Code is amended to read:

   1067.16.  All proceedings in which the insolvent insurer is a
party in any court in this state shall be stayed not less than 180
days from the date an order of liquidation, rehabilitation, or
conservation is final, to permit proper legal action by the
association on any matters germane to its powers or duties. As to
judgment under any decision, order, verdict, or finding based on
default the association may apply to have the judgment set aside by
the same court that made the judgment and shall be permitted to
defend against the suit on the merits.
  SEC. 15.  Section 1067.17 of the Insurance Code is amended to read:

   1067.17.  (a) No person, including an insurer, agent, or affiliate
of an insurer shall make, publish, disseminate, circulate, or place
before the public, or cause directly or indirectly, to be made,
published, disseminated, circulated, or placed before the public, in
any newspaper, magazine, or other publication, or in the form of a
notice, circular, pamphlet, letter, or poster, or over any radio
station or television station, or in any other way, any
advertisement, announcement, or statement, written or oral, which
uses the existence of the California Life and Health Insurance
Guarantee Association for the purpose of sales, solicitation, or
inducement to purchase any form of insurance covered by the
California Life and Health Insurance Guarantee Association Act.
Provided, however, that this section shall not apply to the
California Life and Health Insurance Guarantee Association or any
other entity which does not sell or solicit insurance.
   (b) (1) The association shall prepare a summary document
describing the general purposes and current limitations of the
article and complying with subdivision (c). This document shall be
submitted to the commissioner for approval. Sixty days after
receiving approval, no insurer may deliver a policy or contract
described in paragraph (1) of subdivision (b) of Section 1067.02 to a
policyholder or contractholder unless the document is delivered to
the policy or contract holder prior to or at the time of delivery of
the policy or contract except if subdivision (d) applies. The
document should also be available upon request by the policyholder.
The distribution, delivery, or contents or interpretation of this
document shall not mean that either the policy or the contract or the
holder thereof would be covered in the event of the impairment or
insolvency of a member insurer. The description document shall be
revised by the association as amendments to the article may require.
Failure to receive this document does not give the policyholder,
contractholder, certificate holder, or insured any greater rights
than those stated in this article. This paragraph shall remain
operative only until paragraph (2) becomes operative.
   (2) Within 180 days of the effective date of the act that amended
this section in the 2009-10 Regular Session, the association shall
prepare a summary document describing the general purposes and
current limitations of the article and complying with subdivision
(c). This document shall be submitted to the commissioner for
approval. At the expiration of the 60th day after the date on which
the commissioner approves the document, an insurer may not deliver a
policy or contract described in paragraph (1) of subdivision (b) of
Section 1067.02 to a policy or contract owner unless the summary
document is delivered to the policy or contract owner at the time of
delivery of the policy or contract. The document shall also be
available upon request by a policy owner. The distribution, delivery,
or contents or interpretation of this document does not guarantee
that either the policy or the contract or the owner of the policy or
contract is covered in the event of the impairment or insolvency of a
member insurer. The description document shall be revised by the
association, as amendments to the article may require. Failure to
receive this document does not give the policy owner, contract owner,
certificate holder, or insured any greater rights than those stated
in this article.
   (c) The document prepared under subdivision (b) shall contain a
clear and conspicuous disclaimer on its face. The commissioner shall
promulgate a rule establishing the form and content of the
disclaimer. The disclaimer shall do all of the following:
   (1) State the name and address of the life and health insurance
guarantee association and insurance department.
   (2) Prominently warn the policy owner or contract owner that the
California Life and Health Insurance Guarantee Association may not
cover the policy or, if coverage is available, it will be subject to
substantial limitations and exclusions and conditioned on continued
residence in the state.
   (3) State that the insurer and its agents are prohibited by law
from using the existence of the California Life and Health Insurance
Guarantee Association for the purpose of sales, solicitation, or
inducement to purchase any form of insurance.
   (4) State that the policy owner or contract owner should not rely
on coverage under the California Life and Health Insurance Guarantee
Association when selecting an insurer.
   (5) Provide other information as directed by the commissioner.
   SEC. 16.    The amendments made to the California
Life and Health Insurance Guarantee Association Act (Article 14.7
(commencing with Section 1067) of Chapter 1 of Part 2 of Division 1
of the                                                   Insurance
Code) by this act during the 2009-10 Regular Session of the
Legislature shall not apply to any member insurer that, before the
effective date of this act, has been placed under an order of
liquidation with a finding of insolvency. 
   SEC. 16.   SEC. 17.   This act is an
urgency statute necessary for the immediate preservation of the
public peace, health, or safety within the meaning of Article IV of
the Constitution and shall go into immediate effect. The facts
constituting the necessity are:
   In order to increase benefits payable to consumers in the event of
the insolvency of a life or health insurance company as soon as
possible, to make California's insurance regulatory statutes
governing the administration of an insolvency of a life or health
insurance company more consistent with those in other states, and to
resolve any possible gaps in coverage, it is necessary that this act
take effect immediately.