BILL NUMBER: AB 2781	INTRODUCED
	BILL TEXT


INTRODUCED BY   Committee on Insurance (Solorio (Chair), Bradford,
Carter, Feuer, Hayashi, Nava, and Torres)

                        MARCH 3, 2010

   An act to amend Sections 1063.1 and 1063.75 of the Insurance Code,
relating to insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2781, as introduced, Committee on Insurance. Insurance:
Guarantee Association.
   Existing law establishes the California Insurance Guarantee
Association to provide coverage against losses arising from the
failure of an insolvent property, casualty, or workers' compensation
insurer to discharge its obligations under its insurance policies.
The association is managed by a board of governors appointed by the
commissioner, the President pro Tempore of the Senate, and the
Speaker of the Assembly.
   Existing law defines the term "insolvent insurer" to mean an
insurer that was a member insurer of the association, as specified,
either at the time the policy was issued or when the insured event
occurred, and against which an order of liquidation or receivership
with a finding of insolvency has been entered by a court of competent
jurisdiction, or, in the case of the State Compensation Insurance
Fund, if a finding of insolvency is made by a duly enacted
legislative measure.
   This bill would delete an order of receivership as a qualification
for being an insolvent insurer.
   Existing law provides that any bonds to provide funds for covered
claim obligations for workers' compensation claims shall be issued,
as specified, prior to January 1, 2011.
   This bill would extend the date for bonds to be issued to provide
funds for covered claim obligations for workers' compensation claims,
as specified, to January 1, 2013.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


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

  SECTION 1.  Section 1063.1 of the Insurance Code is amended to
read:
   1063.1.  As used in this article:
   (a) "Member insurer" means an insurer required to be a member of
the association in accordance with subdivision (a) of Section 1063,
except and to the extent that the insurer is participating in an
insolvency program adopted by the United States government.
   (b) "Insolvent insurer" means an insurer that was a member insurer
of the association, consistent with paragraph (11) of subdivision
(c), either at the time the policy was issued or when the insured
event occurred, and against which an order of liquidation  or
receivership  with a finding of insolvency has been entered
by a court of competent jurisdiction, or, in the case of the State
Compensation Insurance Fund, if a finding of insolvency is made by a
duly enacted legislative measure.
   (c) (1) "Covered claims" means the obligations of an insolvent
insurer, including the obligation for unearned premiums, that satisfy
all of the following requirements:
   (A) Imposed by law and within the coverage of an insurance policy
of the insolvent insurer.
   (B) Which were unpaid by the insolvent insurer.
   (C) Which are presented as a claim to the liquidator in this state
or to the association on or before the last date fixed for the
filing of claims in the domiciliary liquidating proceedings.
   (D) Which were incurred prior to the date coverage under the
policy terminated and prior to, on, or within 30 days after the date
the liquidator was appointed.
   (E) For which the assets of the insolvent insurer are insufficient
to discharge in full.
   (F) In the case of a policy of workers' compensation insurance, to
provide workers' compensation benefits under the workers'
compensation law of this state.
   (G) In the case of other classes of insurance if the claimant or
insured is a resident of this state at the time of the insured
occurrence, or the property from which the claim arises is
permanently located in this state.
   (2) "Covered claims" also includes the obligations assumed by an
assuming insurer from a ceding insurer where the assuming insurer
subsequently becomes an insolvent insurer if, at the time of the
insolvency of the assuming insurer, the ceding insurer is no longer
admitted to transact business in this state. Both the assuming
insurer and the ceding insurer shall have been member insurers at the
time the assumption was made. "Covered claims" under this paragraph
shall be required to satisfy the requirements of subparagraphs (A) to
(G), inclusive, of paragraph (1), except for the requirement that
the claims be against policies of the insolvent insurer. The
association shall have a right to recover any deposit, bond, or other
assets that may have been required to be posted by the ceding
company to the extent of covered claim payments and shall be
subrogated to any rights the policyholders may have against the
ceding insurer.
   (3) "Covered claims" does not include obligations arising from the
following:
   (A) Life, annuity, health, or disability insurance.
   (B) Mortgage guaranty, financial guaranty, or other forms of
insurance offering protection against investment risks.
   (C) Fidelity or surety insurance including fidelity or surety
bonds, or any other bonding obligations.
   (D) Credit insurance.
   (E) Title insurance.
   (F) Ocean marine insurance or ocean marine coverage under 
any   an  insurance policy including claims
arising from the following: the Jones Act (46 U.S.C.  Sec.
688   Secs. 30104 and 30105  ), the Longshore and
Harbor Workers' Compensation Act (33 U.S.C. Sec. 901 et seq.), or any
other similar federal statutory enactment, or  any 
 an  endorsement or policy affording protection and
indemnity coverage.
   (G) Any claims servicing agreement or insurance policy providing
retroactive insurance of a known loss or losses, except a special
excess workers' compensation policy issued pursuant to subdivision
(c) of Section 3702.8 of the Labor Code that covers all or any part
of workers' compensation liabilities of an employer that is issued,
or was previously issued, a certificate of consent to self-insure
pursuant to subdivision (b) of Section 3700 of the Labor Code.
   (4) "Covered claims" does not include any obligations of the
insolvent insurer arising out of any reinsurance contracts, nor any
obligations incurred after the expiration date of the insurance
policy or after the insurance policy has been replaced by the insured
or canceled at the insured's request, or after the insurance policy
has been canceled by the liquidator, nor any obligations to 
any   a  state or to the federal government.
   (5) "Covered claims" does not include any obligations to insurers,
insurance pools, or underwriting associations, nor their claims for
contribution, indemnity, or subrogation, equitable or otherwise,
except as otherwise provided in this chapter.
   An insurer, insurance pool, or underwriting association may not
maintain, in its own name or in the name of its insured,  any
  a  claim or legal action against the insured of
the insolvent insurer for contribution, indemnity or by way of
subrogation, except insofar as, and to the extent only, that the
claim exceeds the policy limits of the insolvent insurer's policy. In
those claims or legal actions, the insured of the insolvent insurer
is entitled to a credit or setoff in the amount of the policy limits
of the insolvent insurer's policy, or in the amount of the limits
remaining, where those limits have been diminished by the payment of
other claims.
   (6) "Covered claims," except in cases involving a claim for
workers' compensation benefits or for unearned premiums, does not
include  any   a  claim in an amount of one
hundred dollars ($100) or less, nor that portion of  any
  a  claim that is in excess of any applicable
limits provided in the insurance policy issued by the insolvent
insurer.
   (7) "Covered claims" does not include that portion of  any
  a  claim, other than a claim for workers'
compensation benefits, that is in excess of five hundred thousand
dollars ($500,000).
   (8) "Covered claims" does not include any amount awarded as
punitive or exemplary damages, nor any amount awarded by the Workers'
Compensation Appeals Board pursuant to Section 5814 or 5814.5 of the
Labor Code because payment of compensation was unreasonably delayed
or refused by the insolvent insurer.
   (9) "Covered claims" does not include (A)  any 
 a  claim to the extent it is covered by any other insurance
of a class covered by this article available to the claimant or
insured or (B)  any   a  claim by 
any   a  person other than the original claimant
under the insurance policy in his or her own name, his or her
assignee as the person entitled thereto under a premium finance
agreement as defined in Section 673 and entered into prior to
insolvency, his or her executor, administrator, guardian, or other
personal representative or trustee in bankruptcy, and does not
include  any   a  claim asserted by an
assignee or one claiming by right of subrogation, except as otherwise
provided in this chapter.
   (10) "Covered claims" does not include any obligations arising out
of the issuance of an insurance policy written by the separate
division of the State Compensation Insurance Fund pursuant to
Sections 11802 and 11803.
   (11) "Covered claims" does not include any obligations of the
insolvent insurer arising from  any   a 
policy or contract of insurance issued or renewed prior to the
insolvent insurer's admission to transact insurance in the State of
California.
   (12) "Covered claims" does not include surplus deposits of
subscribers as defined in Section 1374.1.
   (13) "Covered claims" shall also include obligations arising under
an insurance policy written to indemnify a permissibly self-insured
employer pursuant to subdivision (b) or (c) of Section 3700 of the
Labor Code for its liability to pay workers' compensation benefits in
excess of a specific or aggregate retention, provided, however, that
for purposes of this article, those claims shall not be considered
workers' compensation claims and therefore are subject to the per
claim limit in paragraph (7) and any payments and expenses related
thereto shall be allocated to category (c) for claims other than
workers' compensation, homeowners, and automobile, as provided in
Section 1063.5.
   These provisions shall apply to obligations arising under 
any   a  policy as described herein issued to a
permissibly self-insured employer or group of self-insured employers
pursuant to Section 3700 of the Labor Code and notwithstanding any
other provision of the Insurance Code, those obligations shall be
governed by this provision in the event that the Self-Insurers'
Security Fund is ordered to assume the liabilities of a permissibly
self-insured employer or group of self-insured employers pursuant to
Section 3701.5 of the Labor Code. The provisions of this paragraph
apply only to insurance policies written to indemnify a permissibly
self-insured employer or group of self-insured employers under
subdivision (b) or (c) of Section 3700, for its liability to pay
workers' compensation benefits in excess of a specific or aggregate
retention, and this paragraph does not apply to special excess
workers' compensation insurance policies unless issued pursuant to
authority granted in subdivision (c) of Section 3702.8 of the Labor
Code, and as provided for in subparagraph (G) of paragraph (3) of
subdivision (c). In addition, this paragraph does not apply to any
claims servicing agreement or insurance policy providing retroactive
insurance of a known loss or losses as are excluded in subparagraph
(G) of paragraph (3) of subdivision (c).
   Each permissibly self-insured employer or group of self-insured
employers, or the Self-Insurers' Security Fund, shall, to the extent
required by the Labor Code, be responsible for paying, adjusting, and
defending each claim arising under policies of insurance covered
under this section, unless the benefits paid on a claim exceed the
specific or aggregate retention, in which case:
   (A) If the benefits paid on the claim exceed the specific or
aggregate retention, and the policy requires the insurer to defend
and adjust the claim, the California Insurance Guarantee Association
(CIGA) shall be solely responsible for adjusting and defending the
claim, and shall make all payments due under the claim, subject to
the limitations and exclusions of this article with regards to
covered claims. As to each claim subject to this paragraph,
notwithstanding any other provisions of the Insurance Code or the
Labor Code, and regardless of whether the amount paid by CIGA is
adequate to discharge a claim obligation, neither the self-insured
employer, group of self-insured employers, nor the Self-Insurers'
Security Fund, shall have any obligation to pay benefits over and
above the specific or aggregate retention, except as provided in
subdivision (c).
   (B) If the benefits paid on the claim exceed the specific or
aggregate retention, and the policy does not require the insurer to
defend and adjust the claim, the permissibly self-insured employer or
group of self-insured employers, or the Self-Insurers' Security
Fund, shall not have any further payment obligations with respect to
the claim, but shall continue defending and adjusting the claim, and
shall have the right, but not the obligation, in any proceeding to
assert all applicable statutory limitations and exclusions as
contained in this article with regard to the covered claim. CIGA
shall have the right, but not the obligation, to intervene in any
proceeding where the self-insured employer, group of self-insured
employers, or the Self-Insurers' Security Fund is defending 
any such   a  claim and shall be permitted to raise
the appropriate statutory limitations and exclusions as contained in
this article with respect to covered claims. Regardless of whether
the self-insured employer or group of self-insured employers, or the
Self-Insurers' Security Fund, asserts the applicable statutory
limitations and exclusions, or whether CIGA intervenes in 
any such   a  proceeding, CIGA shall be solely
responsible for paying all benefits due on the claim, subject to the
exclusions and limitations of this article with respect to covered
claims. As to each claim subject to this paragraph, notwithstanding
any other provision of the Insurance Code or the Labor Code and
regardless of whether the amount paid by CIGA is adequate to
discharge a claim obligation, neither the self-insured employer,
group of self-insured employers, nor the Self-Insurers' Security
Fund, shall have any   an  obligation to
pay benefits over and above the specific or aggregate retention,
except as provided in this subdivision.
   (C) In the event that the benefits paid on the covered claim
exceed the per claim limit in paragraph (7) of subdivision (c), the
responsibility for paying, adjusting, and defending the claim shall
be returned to the permissibly self-insured employer or group of
employers, or the Self-Insurers' Security Fund.
   These provisions shall apply to all pending and future
insolvencies. For purposes of this paragraph, a pending insolvency is
one involving a company that is currently receiving benefits from
the guaranty association.
   (d) "Admitted to transact insurance in this state" means an
insurer possessing a valid certificate of authority issued by the
department.
   (e) "Affiliate" means a person who directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under
common control with an insolvent insurer on December 31 of the year
next preceding the date the insurer becomes an insolvent insurer.
   (f) "Control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies
of a person, whether through the ownership of voting securities, by
contract other than a commercial contract for goods or nonmanagement
services, or otherwise, unless the power is the result of an official
position with or corporate office held by the person. Control is
presumed to exist if  any   a  person,
directly or indirectly, owns, controls, holds with the power to vote,
or holds proxies representing, 10 percent or more of the voting
securities of any other person. This presumption may be rebutted by
showing that control does not in fact exist.
   (g) "Claimant" means  any   an  insured
making a first party claim or  any   a 
person instituting a liability claim; provided that no person who is
an affiliate of the insolvent insurer may be a claimant.
   (h) "Ocean marine insurance" includes marine insurance as defined
in Section 103, except for inland marine insurance, as well as any
other form of insurance, regardless of the name, label, or marketing
designation of the insurance policy, that insures against maritime
perils or risks and other related perils or risks,  which
  that  are usually insured against by traditional
marine insurance such as hull and machinery, marine builders' risks,
and marine protection and indemnity. Those perils and risks insured
against include, without limitation, loss, damage, or expense or
legal liability of the insured arising out of or incident to
ownership, operation, chartering, maintenance, use, repair, or
construction of any   a  vessel, craft or
instrumentality in use in ocean or inland waterways, including
liability of the insured for personal injury, illness, or death for
loss or damage to the property of the insured or another person.
   (i) "Unearned premium" means that portion of a premium as
calculated by the liquidator that had not been earned because of the
cancellation of the insolvent insurer's policy and is that premium
remaining for the unexpired term of the insolvent insurer's policy.
"Unearned premium" does not include any amount sought as return of a
premium under  any   a  policy providing
retroactive insurance of a known loss or return of a premium under
 any   a  retrospectively rated policy or a
policy subject to a contingent surcharge or  any 
 a  policy in which the final determination of the premium
cost is computed after expiration of the policy and is calculated on
the basis of actual loss experience during the policy period.
  SEC. 2.  Section 1063.75 of the Insurance Code is amended to read:
   1063.75.  Any bonds issued to provide funds for covered claim
obligations for workers' compensation claims shall be issued prior to
January 1,  2011   2013  , in an aggregate
principal amount outstanding at any one time not to exceed $1.5
billion, and any bonds issued or issued to refund bonds shall not
have a final maturity exceeding 20 years from the date of issuance.
The bonds shall be issued at the request of CIGA, shall be in the
form, shall bear the date or dates, and shall mature at the time or
times as the indenture authorized by the request may provide. The
bonds may be issued in one or more series, as serial bonds or as term
bonds, or as a combination thereof, and, notwithstanding any other
provision of law, the amount of principal of, or interest on, bonds
maturing at each date of maturity need not be equal. The bonds shall
bear interest at the rate or rates, variable or fixed or a
combination thereof, be in the denominations, be in the form, either
coupon or registered, carry the registration privileges, be executed
in the manner, be payable in the medium of payment at the place or
places within or without the state, be subject to the terms of
redemption, contain the terms and conditions, and be secured by the
covenants as the indenture may provide. The indenture may provide for
the proceeds of the bonds and funds securing the bonds to be
invested in any securities and investments, including investment
agreements, as specified therein. CIGA may enter into or authorize
any ancillary obligations or derivative agreements as it determines
necessary or desirable to manage interest rate risk or security
features related to the bonds. The bonds shall be sold at public or
private sale by the Treasurer at, above, or below the principal
amount thereof, on the terms and conditions and for the consideration
in the medium of payment that the Treasurer shall determine prior to
the sale.