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.