BILL ANALYSIS                                                                                                                                                                                                    Ó



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          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














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