BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: AB 822 Hearing Date: June 10, 2015 ----------------------------------------------------------------- |Author: |Cooley | |-----------+-----------------------------------------------------| |Version: |June 1, 2015 Amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |No | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Erin Ryan | | | | ----------------------------------------------------------------- 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 AB 822 (Cooley) Page 2 of ? 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 AB 822 (Cooley) Page 3 of ? 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 AB 822 (Cooley) Page 4 of ? 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 AB 822 (Cooley) Page 5 of ? 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 -- AB 822 (Cooley) Page 6 of ?