BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 822 Hearing Date: June 10,
2015
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|Author: |Cooley |
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|Version: |June 1, 2015 Amended |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Erin Ryan |
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Subject: Insurance: California Insurance Guarantee Association:
insolvency.
SUMMARY Provides that the laws governing the California Insurance
Guarantee Association (CIGA) do not require a final
determination of a claim in an insolvent insurer's liquidation
proceeding before a covered claim may be submitted to CIGA, and
establishes a one year statute of limitations for filing
non-workers' compensation civil claims against CIGA or, if the
written denial of the non-workers' compensation claim is based
on a failure to exhaust other insurance available to pay the
claim, six months after all other insurance has been exhausted,
as specified.
DIGEST
Existing law
1. Establishes CIGA to pay "covered claims" of insolvent member
insurers, as specified. (§1063 et. seq.)
2. Requires each insurer admitted to transact insurance in this
state in three specified classes of insurance, including
workers' compensation, auto and homeowners, and all other
property casualty insurance, to participate in CIGA as a
condition of doing business.
3. Defines "covered claims," and expressly limits CIGA's authority
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to make payments to only those claims that are specifically
enumerated.
4. Specifically provides that a "covered claim" does not include a
claim to the extent it is covered by any other insurance.
(§1063.1(c)(9))
5. 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
This bill
1) Provides that the laws governing CIGA do not require a
final determination of a claim in an insolvent insurer's
liquidation proceeding before a covered claim may be
submitted to CIGA.
2) Provides that if a claim is presented to CIGA and all
requirements for processing a covered claim are satisfied,
CIGA shall process the claim for payment.
3) Provides that if CIGA provides a written denial of a
non-workers' compensation claim, then the person asserting
the claim has one year to bring an action challenging the
denial, including an action for declaratory relief.
4) Provides that if the written denial of the non-workers'
compensation claim is based on a failure to exhaust other
insurance available to pay the claim, a claim shall be
reasserted against CIGA within six months after all other
insurance has been exhausted.
COMMENTS
1. Purpose of the bill To establish a clear standard with
regard to when a cause of action accrues within the workers'
compensation system for CIGA civil claims in response to a
recent Court of Appeal decision in Snyder v. CIGA (229
Cal.App.4th, 177 Cal.Rptr.3d 853) which noted that there is
no statute or regulation specifying when a claim must be
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submitted to CIGA..
2. Background CIGA was created by legislation in 1969 as an
association of insurers that makes payments to policyholders
of property/casualty, workers' compensation and
"miscellaneous" insurers when the member insurance company
becomes insolvent and is unable to do so. It is a statutory
entity that depends on the establishing legislation for its
existence and for a definition of the scope of its powers,
duties and protections. CIGA is funded by premium surcharges
upon applicable lines of insurance, and those surcharges are
limited by statute to a maximum of 2%.
The purpose of CIGA is to pay "covered claims" of member
insurance companies that have become insolvent. CIGA's
total liability for any single claim is $500,000, other than
claims for workers' compensation, which are not limited.
CIGA does not have to pay a claim "to the extent that it is
covered by any other insurance of a class covered by this
article and available to the claimant or insured."
(Insurance Code §1063.1(c)(9)(A)) This requires a factual
determination on a number of issues.
In the Snyder case, the Court was considering a complex and
longstanding litigation that impacted asbestos claims being
paid from a trust established to fund long-term liabilities
of companies that used asbestos after the insolvency of the
workers' compensation insurer. Normally the statute of
limitations accrues on a claim for coverage to CIGA as soon
as CIGA rejects the claim, establishing a clear beginning of
the limitations period. The question in Snyder was more
difficult: when does the limitations period begin to run for
submitting a claim for coverage?
The Court of Appeal in Snyder v. CIGA observed that no
statute or regulation specifies the point at which a claim
must be submitted to CIGA. In the absence of a clear
legislative mandate, the Court discussed the general law
that no cause of action arises until all of the elements
necessary to it were present. The Court went on to create
its own determination of what must be present for a claimant
to have a mature claim against CIGA, stating "An insured's
right to recover from CIGA does not arise and cannot be
determined until it is known what recovery the insured will
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obtain in the insolvency proceedings." The Court went on to
say 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 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 cases
is years if not decades after claims have arisen or the
insurer was seized as insolvent by its home state regulator.
The Court stated that "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 Court's decision in Snyder raises important policy
issues for the handling of claims by CIGA. As noted above,
the purpose of CIGA is to pay "covered claims" of member
insurance companies as soon as possible. The court decision
could result in the unintended consequence of forcing
claimants to wait until an insolvent estate is finally
resolved-possibly many years--before submitting a claim to
CIGA.
By way of example, in the Snyder case the proof of claim was
filed with the liquidator in June of 2004 and no
determination on that claim was made by the liquidator until
2011, almost seven years later. Claimants who want to seek
"covered claim" benefits from CIGA should not have to wait
that many years for their claims against CIGA to mature.
AB 822 will not affect the normal filing of claims for
workers' compensation benefits or change the workers'
compensation process, but will apply to civil claims filed
against the organization.
AB 822 will not affect the parties to the Snyder case, but
will only apply prospectively to new cases.
3. Support CIGA, sponsor of this bill, believes that rather
than have to litigate with various claimants over when a
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cause of action accrues, it would be much more prudent to
clearly remedy the Court's observation that no statute or
regulation specifies when the statute of limitations period
for civil actions against CIGA should begin to run.
Establishing a clear standard will also eliminate the
concern that many claimants never file a proof of claim in
the liquidation proceeding and never get a determination of
what recovery they will obtain in that proceeding as well as
the delays inherent in waiting for the liquidator to make
determinations on what recovery a claimant will receive as a
result of filing a proof of claim.
According to the Association of California insurance
Companies, AB 822 will establish a clear statute of
limitations for those filing claims against CIGA. The bill
is in response to a recent Appellate Court decision that
noted California had no statutes or regulations to address
this issue, and went on to establish its own view of what
the statute of limitations was, creating significant
confusion as to the ability of CIGA to pay claims on a
timely basis. The Personal Insurance Federation of
California supports AB 822 because it takes a reasonable
approach that will provide certainty and eliminate the need
for expensive and time-consuming litigation simply to
determine when the statute of limitations had begun.
4. Opposition None received.
POSITIONS
Support
California Insurance Guarantee Association (sponsor)
Association of California Insurance Companies
Personal Insurance Federation of California
Oppose
None received
-- END --
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