Amended in Assembly April 29, 2014

Amended in Assembly March 28, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2230

Introduced by Assembly Member Cooley

February 20, 2014

An act to amend Sections begin delete 1063.2, 1063.5, end delete begin insert 1063.5 end insert and 1063.74 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2230, as amended, Cooley. Insurance: Workers’ begin delete Compensation end delete begin insert Comp end insert Bond Fund: assessments.

Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact insurance in this state to become members. CIGA is required to collect premium payments from members to discharge its obligations to cover claims of an insolvent insurer. Existing law provides that CIGA shall be a party in interest in all proceedings involving a covered claim, and has all of the rights an insolvent insurer would have if the insurer was not in liquidation. CIGA is required to allocate its claim payments and costs based on categories of insurance, including, but not limited to, workers’ compensation claims and homeowners’ claims. The premium payments from each category are separate and required to be used to pay the claims and costs allocated to that category. Existing law provides that the premium charged to a member insurer for any of the categories of insurance is 1% of the net direct written premium, as defined, written in the category by the member per year.

Existing law authorizes CIGA to request the issuance of bonds by the California Infrastructure and Economic Development Bank to pay for covered claims that arise as a result of the insolvency of workers’ compensation insurers. Proceeds from the sale of the bonds are deposited in the Workers’ Comp Bond Fund, and CIGA distributes this money to pay covered claims. Principal and interest on the bonds are paid from special bond assessments levied by CIGA on workers’ compensation insurers, as provided.

This bill begin delete would delete the provisions regarding CIGA as a party in interest for proceedings involving covered claims. The bill end delete would, commencing January 1, 2015, provide that the premium charged to a member insurer for a category of insurance would be 2% of the net direct written premium, unless there are outstanding bonds, as specified, in which case the premium would not exceed 1% of the net direct written premium for any category of insurance for which the bond proceeds are being used to pay claims and expenses. The bill would prohibit, once all the bonds issued pursuant to these provisions are redeemed, further initial special bond assessments from being levied or made. The bill would require that any premium adjustments applicable to the special bond assessments continue to be made and determined, and that any credits or charges that result from the premium adjustments be credited or charged to the workers’ compensation assessments that the insurers are otherwise required to pay CIGA.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

begin delete

SECTION 1.  

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 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 motorist 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 that 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 tortfeasor is
uninsured as a result of the insolvency of his or her liability insurer
(an insolvent insurer as defined in this article), provided that the
member insurer shall waive all rights of subrogation against the
tortfeasor. 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 that 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 that 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.

(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’s fees
and expenses, court costs, interest, and bond premiums, incurred
prior to the appointment of a liquidator.

end delete

begin delete SEC. 2. end delete
begin insert SECTION 1. end insert   

Section 1063.5 of the Insurance Code is amended
to read:

1063.5.  

Each time an insurer becomes insolvent then, to the
extent necessary to secure funds for the association for payment
of covered claims of that insolvent insurer and also for payment
of reasonable costs of adjusting the claims, the association shall
collect premium payments from its member insurers sufficient to
discharge its obligations. The association shall allocate its claim
payments and costs, incurred or estimated to be incurred, to one
or more of the following categories: (a) workers’ compensation
claims; (b) homeowners’ claims, and automobile claims, which
shall include: automobile material damage, automobile liability
(both personal injury and death and property damage), medical
payments and uninsured motorist claims; and (c) claims other than
workers’ compensation, homeowners’, and automobile, as above
defined. Separate premium payments shall be required for each
category. The premium payments for each category shall be used
to pay the claims and costs allocated to that category. The rate of
premium charged shall be a uniform percentage of net direct written
premium in the preceding calendar year applicable to that category.
The rate of premium charges to each member in the appropriate
categories shall initially be based on the written premium of each
insurer as shown in the latest year’s annual financial statement on
file with the commissioner. The initial premium shall be adjusted
by applying the same rate of premium charge as initially used to
each insurer’s written premium as shown on the annual statement
for the second year following the year on which the initial premium
charge was based. The difference between the initial premium
charge and the adjusted premium charge shall be charged or
credited to each member insurer by the association as soon as
practical after the filing of the annual statements of the member
insurers with the commissioner for the year on which the adjusted
premium is based. Any credit due in a specific category to a
member insurer as a result of the adjusted premium calculation
may be refunded to the member insurer at the discretion of the
association if the member insurer has agreed with the commissioner
to no longer write insurance in that category but has not withdrawn
from the state and surrendered its certificate of authority. However,
in the case of an insurer that was a member insurer when the initial
premium charge was made and that paid the initial assessment but
is no longer a member insurer at the time of the adjusted premium
charge by reason of its insolvency or its withdrawal from the state
and surrender of its certificate of authority to transact insurance
in this state, any credit accruing to that insurer shall be refunded
to it by the association. “Net direct written premiums” shall mean
the amount of gross premiums, less return premiums, received in
that calendar year upon business done in this state, other than
premiums received for reinsurance. In cases of a dispute as to the
amount of the net direct written premium between the association
and one of its members the written decision of the commissioner
shall be final. The premium charged to any member insurer for
any of the three categories or a category established by the
association shall not be more than 2 percent of the net direct
premium written in that category in this state by that member per
year, starting on January 1, 2003, until December 31, 2007, and
thereafter shall be 1 percent per year, until January 1, 2015.
Commencing January 1, 2015, the premium charged to any member
insurer for any of the three categories or a category established by
the association shall not be more than 2 percent of the net direct
written premium unless there are bonds outstanding that were
issued pursuant to Article 14.25 (commencing with Section
1063.50) or Article 14.26 (commencing with Section 1063.70). If
bonds issued pursuant to either article are outstanding, the premium
charged to a member insurer for the category for which the bond
proceeds are being used to pay claims and expenses shall not be
more than 1 percent of the net direct written premium for that
category. The association may exempt or defer, in whole or in part,
the premium charge of any member insurer, if the premium charge
would cause the member insurer’s financial statement to reflect
an amount of capital or surplus less than the minimum amounts
required for a certificate of authority by any jurisdiction in which
the member insurer is authorized to transact insurance. However,
during the period of deferment, no dividends shall be paid to
shareholders or policyholders by the company whose premium
charge was deferred. Deferred premium charges shall be paid when
the payment will not reduce capital or surplus below required
minimums. These payments shall be credited against future
premium charges to those companies receiving larger premium
charges by virtue of the deferment. After all covered claims of the
insolvent insurer and expenses of administration have been paid,
any unused premiums and any reimbursements or claims dividends
from the liquidator remaining in any category shall be retained by
the association and applied to reduce future premium charges in
the appropriate category. However, an insurer which ceases to be
a member of the association, other than an insurer that has become
insolvent or has withdrawn from the state and has surrendered its
certificate of authority following an initial assessment that is
entitled to a refund based upon an adjusted assessment as provided
above in this section, shall have no right to a refund of any
premium previously remitted to the association. The commissioner
may suspend or revoke the certificate of authority to transact
business in this state of a member insurer which fails to pay a
premium when due and after demand has been made.

Interest at a rate equal to the current federal reserve discount
rate plus 21⁄2 percent per annum shall be added to the premium of
any member insurer which fails to submit the premium requested
by the association within 30 days after the mailing request.
However, in no event shall the interest rate exceed the legal
maximum.

begin delete SEC. 3. end delete
begin insert SEC. 2. end insert   

Section 1063.74 of the Insurance Code is amended to
read:

1063.74.  

(a) Notwithstanding any other limits on assessments,
CIGA shall have the authority to levy upon member insurers special
bond assessments in the amount necessary to pay the principal of
and interest on the bonds, and to meet other requirements
established by agreements relating to the bonds. The assessments
shall be collected only from the member insurers providing
workers’ compensation insurance, in the same manner as separate
premium payments are used to pay the claims and costs allocated
to that category pursuant to Section 1063.5. Special bond
assessments made pursuant to this section shall also be subject to
the surcharge provisions in Sections 1063.14 and 1063.145.

(b) Notwithstanding any other law, after all bonds issued
pursuant to this article have been redeemed, no further initial
special bond assessments shall be levied or made. Any premium
adjustments called for and described in Section 1063.5, as applied
to special bond assessments initially charged, shall continue to be
made and determined. Any credits or charges that result from the
premium adjustments on the special bond assessments shall be
credited or charged to the assessments called for and described in
Section 1063.5.

(c) In addition to the special bond assessments provided for in
this section, the board in its discretion and subject to other
obligations of the association, may utilize current funds of CIGA,
premium assessments made under Section 1063.5, and advances
or dividends received from the liquidators of insolvent insurers to
pay the principal and interest on any bonds issued at the board’s
request and shall utilize, to the extent feasible, the recoveries from
the liquidators of the estates of insolvent workers’ compensation
carriers to pay bonds issued at the board’s request to fund workers’
compensation claims.