SB 228: "An Act relating to the Alaska Insurance Guaranty Association and to liquidation of an insurer; and amending Rule 24, Alaska Rules of Civil Procedure."

00                             SENATE BILL NO. 228                                                                         
01 "An Act relating to the Alaska Insurance Guaranty Association and to liquidation of an                                  
02 insurer; and amending Rule 24, Alaska Rules of Civil Procedure."                                                        
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1.  AS 21.78.294 is amended by adding a new subsection to read:                                          
05            (b)  Upon request, a receiver may make an advance payment on a claim to a                                    
06       guaranty association or a foreign guaranty association.  A receiver who denies a                                  
07       request for an advance payment shall provide a written notice of the reason for the                               
08       denial.  A claimant that receives an advance payment in excess of the covered claims                              
09       due the claimant shall promptly refund the difference to the receiver.                                            
10    * Sec. 2.  AS 21.80.060 is amended to read:                                                                        
11            Sec. 21.80.060.  Powers and duties of the association.  (a)  The association                               
12                 (1)  is obligated to pay covered claims existing before the order of                                    
13       liquidation and arising within 30 days after the order of liquidation, or before the                              
14       policy expiration date if less than 30 days after the order of liquidation, or before the                         
01       insured replaces the policy or causes its cancellation if the insured does so within 30                           
02       days after the order of liquidation, but this obligation includes only that amount of                             
03       each covered claim that is less than $500,000, except that a covered claim for return of                          
04       unearned premium may not exceed $10,000 for each policy, and except that the                                      
05       association shall pay the full amount of any covered claim arising out of a workers'                              
06       compensation policy; the association is not obligated                                                             
07                      (A)  to a policyholder or claimant in an amount in excess of the                                   
08            obligation of the insolvent insurer under the policy from which the claim                                    
09            arises; [OR]                                                                                                 
10                      (B)  to pay a claim filed with the association                                                     
11                           (i)  after the earlier of 18 months after the date of the                             
12                 order of liquidation or the final date set by the court for the filing of                           
13                 claims against the liquidator or receiver of an insolvent insurer;                                      
14                           (ii)  arising under a policy of an insolvent insurer and                                  
15                 the association or the association and an insurance guaranty                                        
16                 association of another state has paid $10,000,000 on covered claims                                 
17                 or allowed claims; this sub-subparagraph does not apply to a claim                                  
18                 for workers' compensation benefits; or                                                              
19                           (iii)  by an insured that, on December 31 of the year                                     
20                 preceding the date the insurer becomes an insolvent insurer, had a                                  
21                 net worth exceeding $25,000,000; for purposes of this sub-                                          
22                 subparagraph, the insured's net worth shall be considered to                                        
23                 include the aggregate net worth of the insured and all subsidiaries                                 
24                 calculated on a consolidated basis; or                                                              
25                      (C)  to defend an insured on a covered claim after the                                         
26            association's                                                                                            
27                           (i)  payment, by settlement releasing the insured or                                      
28                 on a judgment, of an amount equal to the lesser of the association's                                
29                 covered claim obligation limit or the applicable limit payable under                                
30                 the policy; or                                                                                      
31                           (ii)  tender of the amount described under (i) of this                                    
01                 subparagraph;                                                                                     
02                 (2)  is considered the insurer to the extent of its obligation on the                                   
03       covered claims and to that extent has all rights, duties, and obligations of the insolvent                        
04       insurer as if the insurer had not become insolvent;                                                               
05                 (3)  shall allocate claims paid and expenses incurred among the three                                   
06       accounts separately, and assess member insurers separately for each account amounts                               
07       necessary to pay the obligation of the association under (1) of this subsection                                   
08       subsequent to an insolvency, the expenses of handling covered claims subsequent to                                
09       an insolvency, and other expenses authorized by this chapter; under this paragraph,                               
10                      (A)  the assessments of each member insurer must be in the                                         
11            proportion that the net direct written premiums of the member insurer for the                                
12            calendar year preceding the assessment on the kinds of insurance in the                                      
13            account bears to the net direct written premiums of all member insurers for the                              
14            calendar year preceding the assessment on the kinds of insurance in the                                      
15            account; each member insurer shall be notified of the assessment not later than                              
16            30 days before it is due;                                                                                    
17                      (B)  a member insurer may not be assessed in any year on any                                       
18            account an amount greater than two percent of the member insurer's net direct                                
19            written premiums for the calendar year preceding the assessment on the kinds                                 
20            of insurance in the account;                                                                                 
21                      (C)  the association may pay claims in any order that it                                           
22            determines reasonable, including the payment of claims as they are received                                  
23            from claimants or in groups or categories of claims; however, if the maximum                                 
24            assessment, together with the other assets of the association in any account,                                
25            does not provide in any one year in any account an amount sufficient to make                                 
26            all necessary payments from that account, the funds available shall be prorated,                             
27            and the unpaid portion shall be paid as soon thereafter as funds become                                      
28            available;                                                                                                   
29                      (D)  the association may defer, in whole or in part, an                                            
30            assessment of any member insurer if the assessment would endanger the ability                                
31            of the member insurer to fulfill the insurer's contractual obligations or cause                              
01            the member insurer's financial statement to reflect amounts of capital or                                    
02            surplus less than the minimum amounts required for a certificate of authority                                
03            by any jurisdiction in which the member insurer is authorized to transact                                    
04            insurance; however, during the period of deferment, the member insurer may                                   
05            not pay dividends to shareholders or policyholders; a deferred assessment may                                
06            only be paid when the payment does not reduce capital or surplus below                                       
07            minimums required by law; a member insurer who pays a larger assessment as                                   
08            a result of a deferment given to another member insurer shall receive a refund                               
09            when the deferment ends or, at the election of the member insurer, receive a                                 
10            credit against future assessments;                                                                           
11                      (E)  each member insurer may set off against an assessment                                         
12            authorized payments made on covered claims and expenses incurred in the                                      
13            payment of these claims by the member insurer if they are chargeable to the                                  
14            account for which the assessment is made;                                                                    
15                 (4)  shall investigate claims brought against the association, adjust,                                  
16       compromise, settle, and pay covered claims to the extent of the association's                                     
17       obligation, and deny all other claims, and may review settlements, releases, and                                  
18       judgments to which the insolvent insurer or its insureds were parties to determine the                            
19       extent to which settlements, releases, and judgments may be properly contested;                                   
20                 (5)  may, subject to AS 21.89.100, appoint, substitute, or direct legal                                 
21       counsel retained under an insurance policy for the defense of a covered claim;                                    
22                 (6)  shall handle claims through its employees or through one or more                                   
23       insurers or other persons designated as servicing facilities; a servicing facility shall                          
24       operate and maintain its principal office in this state unless the use of a servicing                             
25       facility located outside of the state would result in operating cost savings of at least 10                       
26       percent and would not result in material delay in claim payments; designation of a                                
27       servicing facility is subject to the approval of the director, but designation may be                             
28       declined by a member insurer;                                                                                     
29                 (7)  shall reimburse each servicing facility for obligations of the                                     
30       association paid by the facility and for expenses incurred by the facility while handling                         
31       claims on behalf of the association and shall pay the other expenses of the association                           
01       authorized by this chapter.                                                                                       
02            (b)  The association may                                                                                     
03                 (1)  employ or retain those persons necessary to handle claims and                                      
04       perform other duties of the association;                                                                          
05                 (2)  borrow funds necessary to effect the purposes of this chapter in                                   
06       accord with the plan of operation;                                                                                
07                 (3)  sue or be sued; this power includes the power and right to                                     
08       intervene as a party before a court in this state that has jurisdiction over an                               
09       insolvent insurer;                                                                                            
10                 (4)  negotiate and become a party to those contracts that are necessary                                 
11       to carry out the purposes of this chapter;                                                                        
12                 (5)  perform all other acts necessary or proper to carry out the purposes                               
13       of this chapter;                                                                                                  
14                 (6)  refund to the member insurers in proportion to the contribution of                                 
15       each member insurer to that account that amount by which the assets of the account                                
16       exceed the liabilities if, at the end of any calendar year, the board of governors finds                          
17       that the assets of the association in any account exceed the liabilities of that account as                       
18       estimated by the board of governors for the coming year.                                                          
19    * Sec. 3.  AS 21.80.080(a) is amended to read:                                                                     
20            (a)  The director shall                                                                                      
21                 (1)  notify the association of the existence of an insolvent insurer no                                 
22       later than three days after the director receives notice of the determination of the                              
23       insolvency;                                                                                                       
24                 (2)  upon request of the board of governors, provide the association                                    
25       with a statement of the net direct written premiums of each member insurer;                                   
26                 (3)  before approving any transaction or series of transactions                                     
27       within the same insurance holding company system permitting one or more                                       
28       insurance companies to transfer substantially all existing insurance policy                                   
29       liabilities or a class of policies to another company that is not expected to issue                           
30       any new policies, make a full, detailed disclosure, including the mode of transfer,                           
31       the loss reserve, and the asset analysis of the proposed transaction, to the                                  
01       association for review; after receiving the information required in this paragraph                            
02       about the transaction, the association may request a public hearing to ascertain                              
03       whether the risk to the association will unreasonably increase as the result of the                           
04       company assuming the existing liabilities becoming insolvent.                                                 
05    * Sec. 4.  The uncodified law of the State of Alaska is amended by adding a new section to                         
06 read:                                                                                                                   
07       INDIRECT COURT RULE AMENDMENT.  AS 21.80.060(b)(3), as amended by                                                 
08 sec. 2 of this Act, has the effect of amending Rule 24, Alaska Rules of Civil Procedure, by                             
09 giving the Alaska Insurance Guaranty Association the right to intervene in certain civil                                
10 actions.                                                                                                                
11    * Sec. 5.  The uncodified law of the State of Alaska is amended by adding a new section to                         
12 read:                                                                                                                   
13       CONDITIONAL EFFECT.  The amendment to AS 21.80.060(b)(3), made by sec. 2 of                                       
14 this Act, takes effect only if sec. 4 of this Act receives the two-thirds majority vote of each                         
15 house required by art. IV, sec. 15, Constitution of the State of Alaska.