BILL NUMBER: AB 2710	CHAPTERED
	BILL TEXT

	CHAPTER  137
	FILED WITH SECRETARY OF STATE  AUGUST 17, 2016
	APPROVED BY GOVERNOR  AUGUST 17, 2016
	PASSED THE SENATE  JUNE 30, 2016
	PASSED THE ASSEMBLY  AUGUST 1, 2016
	AMENDED IN SENATE  JUNE 13, 2016
	AMENDED IN ASSEMBLY  MARCH 31, 2016
	AMENDED IN ASSEMBLY  MARCH 17, 2016

INTRODUCED BY   Assembly Member Cooley

                        FEBRUARY 19, 2016

   An act to amend Section 1063.2 of, to amend, renumber, and add
Sections 1063.5 and 1063.14 of, and to repeal Sections 1063.45 and
1063.135 of, the Insurance Code, relating to insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2710, Cooley. Insurance: California Insurance Guarantee
Association: premium charges.
   (1) Existing law creates the California Insurance Guarantee
Association (CIGA) and requires all insurers admitted to transact
specified insurance lines in this state to become members. Each time
an insurer becomes insolvent, to the extent necessary to secure funds
for payment of covered claims of that insolvent insurer and also for
payment of reasonable costs of adjusting the claims, CIGA is
required to collect premium payments from its member insurers
sufficient to discharge its obligations, as specified.
   This bill, among other things, would no longer require an insurer
to become insolvent in order for CIGA to collect premium payments
from the member insurers and would require CIGA to collect premiums
in order to secure funds for the payment of its administrative
expenses.
   (2) Under existing law, CIGA is required to be a party in interest
in all proceedings involving a covered claim, and has the same
rights as the insolvent insurer would have had if not in liquidation,
but CIGA has no cause of action against the insureds of the
insolvent insurer for any sums it has paid out, except as provided.
   This bill would provide that the above-stated provision denying
CIGA a cause of action against insureds does not limit CIGA's right
to pursue unpaid reimbursements owed by an employer pursuant to a
workers' compensation insurance policy with a deductible if the
employer was obligated to reimburse the insurer for benefits payments
and related expenses paid by the insurer or CIGA from a special
deposit or from other CIGA funds pursuant to the terms of the policy
and related agreements.
   (3) Existing law requires that the rate of premium charged be a
uniform percentage of net direct written premium, as defined, in the
preceding calendar year applicable to specific categories of
insurance. The rate of premium charges to each member insurer in the
appropriate categories are initially based on the written premium of
each insurer as shown in the latest year's annual financial statement
on file with the Insurance Commissioner and are later adjusted, as
provided. Existing law authorizes CIGA to refund any credit due in a
specific category of insurance to a member insurer as a result of the
adjusted premium calculation, as provided.
   This bill would instead require CIGA, with regard to premium
charges paid prior to January 1, 2017, to refund to a member insurer
any credit due in a specific category as a result of the adjusted
premium calculation.
   This bill, with regard to premium charges paid on or after January
1, 2017, would delete the requirements that the rate of premium
charges be initially based on the written premium of each insurer,
that the premium charges be adjusted later as provided, and that the
member insurer be eligible for a refund of any credit due to that
member insurer as a result of the adjusted premium calculation, and
would instead require that the rate of premium charges to each member
insurer in the appropriate categories be based on the net direct
written premium of each insurer as shown in the latest year's annual
financial statement on file with the commissioner. The bill would
also make conforming changes.
   (4) Existing law authorizes CIGA to exempt or defer a member
insurer from paying the premium charge if the payment would cause the
member insurer's financial statement to reflect an amount of capital
or surplus less than the minimum amounts required for a certificate
of authority by any jurisdiction in which the member insurer is
authorized to transact insurance. Deferred premium charges are
required to be paid when the payment will not reduce capital or
surplus below required minimums. These payments are credited against
future premium charges to those companies receiving larger premium
charges by virtue of the deferment.
   This bill would delete the requirement that the payments be
credited against future premium charges to those companies receiving
larger premium charges by virtue of the deferment.
   (5) Existing law requires CIGA's plan of operations to contain
provisions requiring each member insurer to recoup the premium charge
paid to CIGA from its insureds over a reasonable length of time by
way of a reasonably calculated surcharge on insurance policies to
which the provisions of CIGA apply.
   This bill would instead require each member insurer to recoup the
premium charge from its insureds in the year following the charge.
The bill, with regard to premium charges paid on or after January 1,
2017, among other things, would require the member insurer to file a
report in accordance with the provisions of the plan of operation
indicating the amount of surcharges it has collected, and would
prohibit a member insurer electing to omit collecting surcharges from
any of its insureds from being entitled to any reimbursement from
CIGA, as specified.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 1063.2 of the Insurance Code is amended to
read:
   1063.2.  (a) The association shall pay and discharge covered
claims, and in connection therewith, pay for or furnish loss
adjustment services and defenses of claimants when required by policy
provisions. It may do so either directly by itself or through a
servicing facility or through a contract for reinsurance and
assumption of liabilities by one or more member insurers or through a
contract with the liquidator, upon terms satisfactory to the
association and to the liquidator, under which payments on covered
claims would be made by the liquidator using funds provided by the
association.
   (b) (1) The association shall be a party in interest in all
proceedings involving a covered claim, and shall have the same rights
as the insolvent insurer would have had if not in liquidation,
including, but not limited to, the right to all of the following:
   (A) Appear, defend, and appeal a claim in a court of competent
jurisdiction.
   (B) Receive notice of, investigate, adjust, compromise, settle,
and pay a covered claim.
   (C) Investigate, handle, and deny a noncovered claim.
   (2) The association shall have no cause of action against the
insureds of the insolvent insurer for any sums it has paid out,
except as provided by this article.
   (3) Nothing in paragraph (2) limits the association's right to
pursue unpaid reimbursements owed by an employer pursuant to a
workers' compensation insurance policy with a deductible if the
employer was obligated to reimburse the insurer for benefits payments
and related expenses paid by the insurer or the association from a
special deposit or from other association funds pursuant to the terms
of the policy and related agreements.
   (c) (1) If damages against uninsured motorists are recoverable by
the claimant from his or her own insurer, the applicable limits of
the uninsured motorist coverage shall be a credit against a covered
claim payable under this article. Any person having a claim that may
be recovered under more than one insurance guaranty association or
its equivalent shall seek recovery first from the association of the
place of residence of the insured, except that if it is a first-party
claim for damage to property with a permanent location, he or she
shall seek recovery first from the association of the permanent
location of the property, and if it is a workers' compensation claim,
he or she shall seek recovery first from the association of the
residence of the claimant. Any recovery under this article shall be
reduced by the amount of recovery from any other insurance guaranty
association or its equivalent. A member insurer may recover in
subrogation from the association only one-half of any amount paid by
that insurer under uninsured motorist coverage for bodily injury or
wrongful death (and nothing for a payment for anything else), in
those cases where the injured person insured by such an insurer has
proceeded under his or her uninsured motorist coverage on the ground
that the tortfeasor is uninsured as a result of the insolvency of his
or her liability insurer (an insolvent insurer as defined in this
article), provided that the member insurer shall waive all rights of
subrogation against the tortfeasor. Any amount paid a claimant in
excess of the amount authorized by this section may be recovered by
action, or other proceeding, brought by the association.
   (2) Any claimant having collision coverage on a loss that is
covered by the insolvent company's liability policy shall first
proceed against his or her collision carrier. Neither that claimant
nor the collision carrier, if it is a member of the association,
shall have the right to sue or continue a suit against the insured of
the insolvent insurance company for that collision damage.
   (d) The association shall have the right to recover from any
person who is an affiliate of the insolvent insurer and whose
liability obligations to other persons are satisfied in whole or in
part by payments made under this article the amount of any covered
claim and allocated claims expense paid on behalf of that person
pursuant to this article.
   (e) Any person having a claim or legal right of recovery under any
governmental insurance or guaranty program that is also a covered
claim, shall be required to first exhaust his or her right under the
program. Any amount payable on a covered claim shall be reduced by
the amount of any recovery under the program.
   (f) "Covered claims" for unearned premium by lenders under
insurance premium finance agreements as defined in Section 673 shall
be computed as of the earliest cancellation date of the policy
pursuant to Section 673.
   (g) "Covered claims" shall not include any judgments against or
obligations or liabilities of the insolvent insurer or the
commissioner, as liquidator, or otherwise resulting from alleged or
proven torts, nor shall any default judgment or stipulated judgment
against the insolvent insurer, or against the insured of the
insolvent insurer, be binding against the association.
   (h) "Covered claims" shall not include any loss adjustment
expenses, including adjustment fees and expenses, attorney's fees and
expenses, court costs, interest, and bond premiums, incurred prior
to the appointment of a liquidator.
  SEC. 2.  Section 1063.5 of the Insurance Code is amended and
renumbered, to immediately precede Section 1063.5 of the Insurance
Code, to read:
   1063.45.  (a) (1) To the extent necessary to secure funds for the
association for payment of administrative expenses of the association
and covered claims of insolvent insurers and also for payment of
reasonable costs of adjusting the claims, the association shall
collect premium payments from its member insurers sufficient to
discharge its obligations.
   (2) The association shall allocate its claim payments and costs,
incurred or estimated to be incurred, to one or more of the following
categories:
   (A) Workers' compensation claims.
   (B) Homeowners' claims and automobile claims, including all of the
following:
   (i) Automobile material damage.
   (ii) Automobile liability (both personal injury and death and
property damage).
   (iii) Medical payments.
   (iv) Uninsured motorist claims.
   (C) Claims other than workers' compensation, homeowners, and
automobile, as defined above.
   (3) Separate premium payments shall be required for each category.

   (4) The premium payments for each category shall be used to pay
the claims and costs allocated to that category.
   (b) (1) The rate of premium charged shall be a uniform percentage
of net direct written premium in the preceding calendar year
applicable to that category.
   (2) The rate of premium charges to each member insurer in the
appropriate categories shall initially be based on the written
premium of each insurer as shown in the latest year's annual
financial statement on file with the commissioner.
   (3) The initial premium shall be adjusted by applying the same
rate of premium charge as initially used to each insurer's written
premium as shown on the annual statement for the second year
following the year on which the initial premium charge was based.
   (4) (A) The difference between the initial premium charge and the
adjusted premium charge shall be charged or credited to each member
insurer by the association as soon as practical after the filing of
the annual statements of the member insurers with the commissioner
for the year on which the adjusted premium is based.
   (B) Any credit due in a specific category to a member insurer as a
result of the adjusted premium calculation shall be refunded to the
member insurer.
   (c) (1) For purposes of this section, "net direct written premiums"
means the amount of gross premiums, less return premiums, received
in that calendar year upon business done in this state, other than
premiums received for reinsurance.
   (2) In cases of a dispute as to the amount of the net direct
written premium between the association and one of its member
insurers, the written decision of the commissioner shall be final.
   (d) (1) The premium charged to any member insurer for any of the
three categories or a category established by the association shall
not be more than 2 percent of the net direct premium written in that
category in this state by that member insurer per year, starting on
January 1, 2003, until December 31, 2007, and thereafter shall be 1
percent per year, until January 1, 2015.
   (2) Commencing January 1, 2015, the premium charged to any member
insurer for any of the three categories or a category established by
the association shall not be more than 2 percent of the net direct
written premium unless there are bonds outstanding that were issued
pursuant to Article 14.25 (commencing with Section 1063.50) or
Article 14.26 (commencing with Section 1063.70).
   (3) If bonds issued pursuant to either article are outstanding,
the premium charged to a member insurer for the category for which
the bond proceeds are being used to pay claims and expenses shall not
be more than 1 percent of the net direct written premium for that
category.
   (e) (1) The association may exempt or defer, in whole or in part,
the premium charge of any member insurer, if the premium charge would
cause the member insurer's financial statement to reflect an amount
of capital or surplus less than the minimum amounts required for a
certificate of authority by any jurisdiction in which the member
insurer is authorized to transact insurance. However, during the
period of deferment, no dividends shall be paid to shareholders or
policyholders by the company whose premium charge was deferred.
   (2) Deferred premium charges shall be paid when the payment will
not reduce capital or surplus below required minimums.
   (f) After all covered claims of the insolvent insurer and expenses
of administration have been paid, any unused premiums and any
reimbursements or claims dividends from the liquidator remaining in
any category shall be retained by the association and applied to
reduce future premium charges in the appropriate category.
   (g) The commissioner may suspend or revoke the certificate of
authority to transact business in this state of a member insurer that
fails to pay a premium when due and after demand has been made.
   (h) Interest at a rate equal to the current federal reserve
discount rate plus 21/2 percent per annum shall be added to the
premium of any member insurer that fails to submit the premium
requested by the association within 30 days after the mailing
request. However, in no event shall the interest rate exceed the
legal maximum.
   (i) This section shall apply only to premium charges paid prior to
January 1, 2017.
   (j) This section shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2020, deletes or extends
that date.
  SEC. 3.  Section 1063.5 is added to the Insurance Code, to read:
   1063.5.  (a) (1) To the extent necessary to secure funds for the
association for payment of the administrative expenses of the
association, covered claims of insolvent insurers, and for payment of
reasonable costs of adjusting the claims, the association shall
collect premium payments from its member insurers sufficient to
discharge its obligations.
   (2) The association shall allocate its claim payments and costs,
incurred or estimated to be incurred, to one or more of the following
categories:
   (A) Workers' compensation claims.
   (B) Homeowners' claims and automobile claims, including all of the
following:
   (i) Automobile material damage.
   (ii) Automobile liability (both personal injury and death and
property damage).
   (iii) Medical payments.
   (iv) Uninsured motorist claims.
   (C) Claims other than workers' compensation, homeowners', and
automobile, as defined above.
   (3) Separate premium payments shall be required for each category.

   (4) The premium payments for each category shall be used to pay
the claims and costs allocated to that category.
   (b) (1) The rate of premium charged shall be a uniform percentage
of net direct written premium in the preceding calendar year
applicable to that category.
   (2) The rate of premium charges to each member insurer in the
appropriate categories shall be based on the net direct written
premium of each member insurer as shown in the latest year's annual
financial statement on file with the commissioner.
   (c) (1) For purposes of this section, "net direct written premiums"
means the amount of gross premiums, less return premiums, received
in that calendar year upon business done in this state, other than
premiums received for reinsurance.
   (2) In cases of a dispute as to the amount of the net direct
written premium between the association and one of its member
insurers, the written decision of the commissioner shall be final.
   (d) In charging premiums to member insurers, the association shall
adjust, if necessary, the net direct written premiums shown on a
member insurer's annual statement by excluding any premiums written
for any lines of insurance or types of coverage not covered by this
article under paragraph (3) of subdivision (c) of Section 1063.1.
   (e) (1) The premium charged to any member insurer for any of the
three categories or a category established by the association shall
not be more than 2 percent of the net direct written premium unless
there are bonds outstanding that were issued pursuant to Article
14.25 (commencing with Section 1063.50) or Article 14.26 (commencing
with Section 1063.70).
   (2) If bonds issued pursuant to either article are outstanding,
the premium charged to a member insurer for the category for which
the bond proceeds are being used to pay claims and expenses shall not
be more than 1 percent of the net direct written premium for that
category.
   (f) (1) The association may exempt or defer, in whole or in part,
the premium charge of any member insurer, if the premium charge would
cause the member insurer's financial statement to reflect an amount
of capital or surplus less than the minimum amounts required for a
certificate of authority by any jurisdiction in which the member
insurer is authorized to transact insurance. However, during the
period of deferment, no dividends shall be paid to shareholders or
policyholders by the company whose premium charge was deferred.
   (2) Deferred premium charges shall be paid when the payment will
not reduce capital or surplus below required minimums.
   (g) After all covered claims of insolvent insurers and expenses of
administration have been paid, any unused premiums and any
reimbursements or claims dividends from liquidators remaining in any
category shall be retained by the association and applied to reduce
future premium charges in the appropriate category.
   (h) The commissioner may suspend or revoke the certificate of
authority to transact business in this state of a member insurer that
fails to pay a premium when due and after demand has been made.
   (i) Interest at a rate equal to the current federal reserve
discount rate plus 21/2 percent per annum shall be added to the
premium of any member insurer that fails to submit the premium
requested by the association within 30 days after the mailing
request. However, in no event shall the interest rate exceed the
legal maximum.
   (j) This section shall apply only to premium charges paid on or
after January 1, 2017.
  SEC. 4.  Section 1063.14 of the Insurance Code is amended and
renumbered, to immediately precede Section 1063.14 of the Insurance
Code, to read:
   1063.135.  (a) The plan of operation adopted pursuant to
subdivision (c) of Section 1063 shall contain provisions whereby each
member insurer is required to recoup in the year following the
premium charge a sum reasonably calculated to recoup the premium
charge paid by the member insurer under this article by way of a
surcharge on premiums charged for insurance policies to which this
article applies. Amounts recouped shall not be considered premiums
for any other purpose, including the computation of gross premium tax
or agents' commission.
   (b) The amount of any surcharge shall be separately stated on
either a billing or policy declaration sent to an insured. The
association shall determine the rate of the surcharge and the
collection period for each category and these shall be mandatory for
all member insurers of the association who write business in those
categories. Member insurers who collect surcharges in excess of
premiums paid pursuant to Section 1063.45 for an insolvent insurer
shall remit the excess to the association as an additional premium
within 30 days after the association has determined the amount of the
excess recoupment and given notice to the member insurer of that
amount. The excess shall be applied to reduce future premium charges
in the appropriate category.
   (c) The plan of operation may permit a member insurer to omit
collection of the surcharge from its insureds when the expense of
collecting the surcharge would exceed the amount of the surcharge.
However, nothing in this section shall relieve the member insurer of
its obligation to recoup the amount of surcharge otherwise
collectible.
   (d) This section shall apply only to premium charges paid prior to
January 1, 2017.
   (e) This section shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2020, deletes or extends
that date.
  SEC. 5.  Section 1063.14 is added to the Insurance Code, to read:
   1063.14.  (a) (1) The plan of operation adopted pursuant to
subdivision (c) of Section 1063 shall contain provisions whereby each
member insurer is required to recoup in the year following the
premium charge a sum calculated to recoup the premium charge paid by
the member insurer under this article by way of a surcharge on
premiums charged for insurance policies to which this article
applies.
   (2) Amounts recouped shall not be considered premiums for any
other purpose, including the computation of gross premium tax or
agents' commission.
   (b) (1) The amount of any surcharge shall be separately stated on
either a billing or policy declaration sent to an insured. The
association shall determine the rate of the surcharge and the
collection period for each category, and these shall be mandatory for
all member insurers of the association who write business in those
categories.
   (2) Each member insurer shall file a report in accordance with the
provisions of the plan of operation indicating the amount of
surcharges it has collected.
   (A) Member insurers who collect surcharges in excess of premium
charges paid in the preceding year pursuant to Section 1063.5 shall
remit the excess to the association as an additional premium within
30 days after the association has determined the amount of the excess
recoupment and given notice to the member insurer of that amount.
The excess shall be applied to reduce future premium charges in the
appropriate category.
   (B) Member insurers who report surcharge collections that are less
than what they paid in the preceding year's premium charge shall
receive reimbursement from the association for the shortfall in
surcharge collection.
   (c) (1) The plan of operation may permit a member insurer to omit
collection of the surcharge from its insureds when the expense of
collecting the surcharge would exceed the amount of the surcharge.
   (2) A member insurer electing to omit collecting surcharges from
any of its insureds shall not be entitled to any reimbursement from
the association pursuant to subdivision (b).
   (3) However, nothing in this section shall relieve the member
insurer of its obligation to recoup the amount of surcharge otherwise
collectible.
   (d) This section shall apply only to premium charges paid on or
after January 1, 2017.