BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 822|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AB 822
Author: Cooley (D)
Amended: 6/1/15 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE: 9-0, 6/10/15
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Liu,
Mitchell, Wieckowski
ASSEMBLY FLOOR: 79-0, 4/16/15 - See last page for vote
SUBJECT: Insurance: California Insurance Guarantee
Association: insolvency
SOURCE: California Insurance Guarantee Association
DIGEST: This bill 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.
ANALYSIS:
AB 822
Page 2
Existing law:
1) Establishes CIGA to pay covered claims of insolvent member
insurers, as specified.
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
to make payments to only those claims that are specifically
enumerated.
4) Provides that a covered claim does not include a claim to the
extent it is covered by any other insurance.
5) Requires California policyholders to 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
AB 822
Page 3
insurance has been exhausted.
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." This requires a factual determination on a number
of issues.
In Snyder v. CIGA (229 Cal.App.4th, 177 Cal.Rptr.3d 853), the
Court of Appeal 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 in Snyder 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
AB 822
Page 4
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
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's decision in Snyder raises important policy issues
for the handling of claims by CIGA. 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
AB 822
Page 5
SUPPORT: (Verified6/11/15)
California Insurance Guarantee Association (source)
Association of California Insurance Companies
Personal Insurance Federation of California
OPPOSITION: (Verified6/11/15)
None received
ARGUMENTS IN SUPPORT: CIGA, sponsor of this bill, believes
that rather than have to litigate with various claimants over
when a 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.
AB 822
Page 6
ASSEMBLY FLOOR: 79-0, 4/16/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Perea, Rendon, Ridley-Thomas, Rodriguez, Salas,
Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner,
Waldron, Weber, Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Quirk
Prepared by:Erin Ryan / INS. / (916) 651-4110
6/16/15 16:22:29
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