BILL ANALYSIS Ó
AB 822
Page 1
Date of Hearing: April 8, 2015
ASSEMBLY COMMITTEE ON INSURANCE
Tom Daly, Chair
AB 822
(Cooley) - As Amended April 6, 2015
SUBJECT: California Insurance Guarantee Association: Statute of
Limitations
SUMMARY: Establishes a statutory 1-year statute of limitations
for filing a claim against the California Insurance Guarantee
Association (CIGA). Specifically, this bill:
1)Declares that nothing in the law governing CIGA requires that
there be a final adjudication of claims in the proceedings
associated with the insolvent insurer's estate before a
"covered claim" may be submitted to CIGA.
2)Declares that nothing in the law governing CIGA requires a
claim to first be adjudicated and approved by a liquidator of
the estate of an insolvent insurer before CIGA pays and
discharges a covered claim.
3)Specifies that once CIGA has issued a written denial of a
claim, the person asserting the claim has one year within
which to bring an action against CIGA challenging the denial.
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4)Provides that, if the denial is based on the failure to
exhaust "other insurance" then the claim must be reasserted
within 6 months after all other insurance has been exhausted.
EXISTING LAW:
1)Provides for the establishment of CIGA by all insurers
admitted (licensed) to transact property-casualty insurance in
California.
2)Specifies how CIGA is to be organized and governed, subject to
the supervision of the Insurance Commissioner (commissioner).
3)Provides that if an insurer admitted to transact
property-casualty insurance in California becomes insolvent,
those California claimants whose claim(s) would have been paid
by that insolvent insurer may file a claim against CIGA.
4)Provides that CIGA may only pay "covered claims", which are
described in statute in some detail, and which cover most, but
not all, theoretical claims that the insolvent insurer might
have had to pay.
5)Specifies that CIGA shall not pay a "covered claim" if there
is "other insurance" that is also obligated to pay that same
claim.
6)Provides that California policyholders pay an assessment on
insurance policies (up to 2%, subject to some qualifications)
in order to fund CIGA's claims-paying obligations.
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7)Provides that if an insurer that is a California domestic
insurer becomes insolvent, the commissioner is in charge of
handling the insolvency, in concert with other states where
the California domestic insurer is admitted to transact
insurance.
8)Provides that if an insurer that is domiciled in another
state, but admitted to transact insurance in California,
becomes insolvent, the insurance regulator in the insurer's
home state is primarily in charge of handling the insolvency
of that insurer.
FISCAL EFFECT: Undetermined.
COMMENTS:
1)Purpose. According to the author, this bill is intended to
address what are probably unintended consequences of a recent
Court of Appeal decision. In Snyder v. CIGA (229 Cal.App.4th
1196, 177 Cal.Rptr.3d 853), the Court was considering a
complex and long-standing litigation that impacted asbestos
claims being paid from a trust established to fund long-term
liabilities of companies that used asbestos (arguably) before
its toxicity was understood. In that case, the Court was
forced to deal with several issues, and in the context of
ruling that the claim against CIGA was not barred by a statute
of limitations, it stated "A more difficult question is when
the limitations period begins to run for submitting a claim
for coverage. Neither the statute nor any regulation
specifies the point at which a claim must be submitted to
CIGA. California differs from other states in this regard."
Unfortunately, and independent of the long-term nature of the
Snyder litigation, the implication of the Court's ruling is
that no claim against CIGA becomes ripe until the underlying
insolvent insurer's estate is finally resolved - which in many
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cases is years if not decades after claims have arisen or the
insurer was seized as insolvent by its home state regulator.
AB 822 is designed to establish a clear and reasonable
bright-line rule for when a claimant must file a claim against
CIGA.
2)Background. AB 822 addresses the interaction of two related
but distinct consumer protection laws. One of the primary
insurance consumer protection roles of the commissioner is
ensuring the solvency of insurers. When an insurer fails,
consumers are at risk of not being paid at all. As a result,
there are two parallel and complex regulatory interests: 1)
how are insolvent insurers handled, and 2) how are people who
are owed money from those insurers protected.
An insolvent insurer does not typically have "zero" money. What
makes it insolvent is that it does not have enough money to
pay its short-term and long-term obligations. California law,
and the highly similar laws of the other states and United
States jurisdictions, have an elaborate procedure for ensuring
that 1) the maximum amount of money is preserved for paying
claims (e.g., assets are liquidated rationally, not in a
"fire-sale"; reinsurance is collected; receivables are
pursued), and 2) the highest priority claimants have first
claim on that money (e.g., insurance policyholder claims have
a higher priority than general creditors).
The guarantee association structure, on the other hand, is
intended to make sure that people or companies who have claims
against the insolvent insurer, to the extent possible and
authorized by statute, get paid in the short term, as opposed
to many years in the future when all of the complexities of
the insolvent insurer's estate can be finally worked out. In
this regard, CIGA pays claims up front, and then asserts its
rights to get repaid at some future date depending on how many
pennies on the dollar are left in the insolvent insurer's
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estate.
3)Snyder. The Court in Snyder faced a complex and long-standing
litigation, and the exposures associated with asbestos are
also long-term. Thus, ensuring the reasonable rights of all
parties to that litigation was a difficult task. However, in
judging the equities of the parties in that case, the Court
used language that is troublesome for typical parties involved
in typical insurer insolvencies. Specifically, the Court
stated that "An insured's right to recover from CIGA does not
arise and cannot be determined until it is known what recovery
the insured will obtain in the insolvency proceedings." The
Court went on to state that "Nonetheless, because the claim is
not ripe for determination until the actual recovery in the
insolvency proceedings is known, a fair argument can be made
that the cause of action against CIGA does not accrue until
that uncertainty has been resolved."
The policy issues posed by the Snyder language are 1) whether or
not it is reasonable to make a claimant wait for years until
an insolvent insurer's estate is finally resolved before a
claim can be filed against CIGA, and 2) whether or not it is
fair to California policyholders (who fund CIGA) that
claimants may hold back filing claims for years/decades and
then file after no one involved in the matter is available to
provide testimony or evidence as to whether the claim is valid
or not. At least with respect to the first issue, making
claimants wait to be paid is contrary to the main purpose of
CIGA - which is to get "covered claims" paid expeditiously
despite the insurer being insolvent.
AB 822 answers these questions by stating that the final
determination of the insolvent insurer's estate is not the
relevant time frame, and that once CIGA issues a written
denial of a claim, a claimant has 1-year to challenge that
denial in court.
4)Law of the case. Nothing in AB 822 will impact the parties to
the Snyder case. The decision that those claimants are not
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prevented from filing their challenge against CIGA by a
statute of limitations is a final determination on that issue.
AB 822 would apply only prospectively to new cases.
REGISTERED SUPPORT / OPPOSITION:
Support
Association of California Insurance Companies
Personal Insurance Federation of California
California Insurance Guarantee Association
Opposition
None received
Analysis Prepared by:Mark Rakich / INS. / (916) 319-2086
AB 822
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