00 CS FOR HOUSE BILL NO. 310(L&C) 01 "An Act relating to the Alaska Insurance Guaranty Association." 02 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 03 * Section 1. AS 21.80.010 is amended to read: 04  Sec. 21.80.010. Purposes [PURPOSE]. The  purposes  [PURPOSE] of this 05 chapter  are  [IS] to provide a mechanism for the payment of covered claims under 06 certain insurance policies to avoid excessive delay in payment and ,  to  the extent 07 provided in this chapter, to minimize  [AVOID] financial loss to claimants or 08 policyholders because of the insolvency of an insurer, [TO ASSIST IN THE 09 DETECTION AND PREVENTION OF INSURER INSOLVENCIES,] and to provide 10 an association to assess the cost of this protection among insurers. 11 * Sec. 2. AS 21.80.020 is repealed and reenacted to read: 12  Sec. 21.80.020. Applicability. This chapter applies to all kinds of direct 13 insurance written by an admitted insurer, except that this chapter does not apply to the 14 following: 01  (1) life, annuity, health, or disability insurance; 02  (2) residual value, mortgage guaranty, or financial guaranty of other 03 forms of insurance offering protection against investment risks; 04  (3) bonding obligations, including fidelity or surety bonds; 05  (4) insurance protecting the interests of a creditor arising out of a 06 creditor-debtor transaction, including credit insurance, vendors' single interest 07 insurance, or collateral protection insurance; 08  (5) insurance of warranties or service contracts, including insurance 09 providing for 10  (A) the repair, replacement, or service of goods or property; 11  (B) indemnification for repair, replacement, or service of goods 12 or property; or 13  (C) reimbursement for liability incurred by a person issuing a 14 warranty or service contract; 15  (6) title insurance; 16  (7) a transaction or combination of transactions between a person, 17 including the person's affiliates, and an insurer, including the insurer's affiliates, that 18 involves the transfer of investment or credit risk unaccompanied by the transfer of 19 insurance risk; 20  (8) insurance provided by or guaranteed by a government; 21  (9) a risk retention group formed under 15 U.S.C. 3901 - 3906 22 (Liability Risk Retention Act); 23  (10) insurance written on a retroactive basis to cover known losses for 24 which a claim has already been made and the claim is known to the insurer at the time 25 the insurance is bound. 26 * Sec. 3. AS 21.80.030 is amended to read: 27  Sec. 21.80.030. Construction. This chapter shall be [LIBERALLY] construed 28 to effect the purposes under AS 21.80.010 ,  which constitute an aid and guide to 29 interpretation. 30 * Sec. 4. AS 21.80.040 is amended to read: 31  Sec. 21.80.040. Creation of association. There is created a nonprofit 01 incorporated legal entity to be known as the Alaska Insurance Guaranty Association. 02 All insurers defined as member insurers in AS 21.80.180 shall be and remain members 03 of the association as a condition of their authority to transact insurance in this state. 04 The association shall perform its functions under a plan of operation established and 05 approved under AS 21.80.070 and shall exercise its powers through a board of 06  governors  [DIRECTORS] established under AS 21.80.050. For purposes of 07 administration and assessment, the association shall be divided into three separate 08 accounts: the workers' compensation insurance account; the automobile insurance 09 account; and the account for all other insurance to which this chapter applies. 10 * Sec. 5. AS 21.80.040 is amended by adding a new subsection to read: 11  (b) A member insurer ceases to be a member on the day following the 12 termination or expiration of the member insurer's license to transact the kinds of 13 insurance to which this chapter applies; however, the insurer remains liable as a 14 member insurer for any and all obligations, including obligations for assessments 15 levied before the termination or expiration of the member insurer's license and 16 assessments levied after the termination or expiration with respect to an insurer that 17 became an insolvent insurer before the termination or expiration of the insurer's 18 license. 19 * Sec. 6. AS 21.80.050 is amended to read: 20  Sec. 21.80.050. Board of governors [DIRECTORS]. (a) The board of 21  governors  [DIRECTORS] of the association consists of not fewer than five nor more 22 than nine  members as specified in and  [PERSONS] serving terms as established in 23 the plan of operation.  The director may appoint two individuals as members of the 24 board to represent the public.  The  insurer  members of the board shall be selected 25 by member insurers ,  subject to the approval of the director.  A vacancy in a board 26 membership held by an insurer member  [VACANCIES OF THE BOARD] shall be 27 filled for the remaining period of the term  by a majority vote of the remaining 28 board members, subject to the approval of the director  [IN THE SAME MANNER 29 AS INITIAL APPOINTMENTS]. If  an insurer  [A] member is not selected to fill a 30 vacancy on the board of  governors  [DIRECTORS] within 90 days of the vacancy, the 31 director may appoint a member for the remaining period of the term.  A vacancy in 01 a board membership held by a representative of the public may be filled by the 02 director. A board member who represents the public may not be an officer, 03 director, or employee of an insurer and may not be engaged in the business of 04 insurance.  05  (b) In approving  member insurer  selections to the board, the director shall 06 consider among other things whether all member insurers are fairly represented. 07  (c) Members of the board may be reimbursed from the assets of the association 08 for expenses incurred by them as members of the board of  governors  [DIRECTORS]. 09 * Sec. 7. AS 21.80.060 is amended to read: 10  Sec. 21.80.060. Powers and duties of the association. (a) The association 11  (1) is obligated to  pay  [THE EXTENT OF THE] covered claims 12 existing before the  order of liquidation  [DETERMINATION OF INSOLVENCY] and 13 arising within 30 days after the  order of liquidation  [DETERMINATION OF 14 INSOLVENCY BY A COURT OF COMPETENT JURISDICTION IF THE 15 INSOLVENT INSURER OR RECEIVER CEASES TO PAY ANY OR ALL CLAIMS 16 WHILE PREPARING AND ADOPTING A PLAN OF LIQUIDATION OR HAVING 17 ENTERED INTO A PLAN OF LIQUIDATION APPROVED BY THE COURT 18 UNDER AS 21.78], or before the policy expiration date if less than 30 days after the 19  order of liquidation  [DETERMINATION], or before the insured replaces the policy 20 or causes its cancellation if the insured does so within 30 days  after  [OF] the  order 21 of liquidation  [DETERMINATION], but this obligation includes only that amount of 22 each covered claim that is [IN EXCESS OF $100 AND IS] less than $500,000, except 23 that  a covered claim for return of unearned premium may not exceed $10,000 for 24 each policy, and except that  the association shall pay the full amount of any covered 25 claim arising out of a workers' compensation policy; [IN NO EVENT IS] the 26 association  is not  obligated 27   (A)  to a policyholder or claimant in an amount in excess of the 28 obligation of the insolvent insurer under the policy from which the claim 29 arises ; or 30  (B) to pay a claim filed with the association after the final 31 date set by the court for the filing of claims against the liquidator or 01 receiver of an insolvent insurer ; 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, [THE COST OF EXAMINATIONS UNDER AS 21.80.110,] and other 10 expenses authorized by this chapter;  under this paragraph, 11  (A)  the assessments of each member insurer must be in the 12 proportion that the net direct written premiums of the member insurer for the 13 [PRECEDING] calendar year  preceding the assessment  on the kinds of 14 insurance in the account bears to the net direct written premiums of all member 15 insurers for the [PRECEDING] calendar year  preceding the assessment  on the 16 kinds of insurance in the account; each member insurer shall be notified of the 17 assessment not later than 30 days before it is due; 18   (B)  a member insurer may not be assessed in any year on any 19 account an amount greater than two percent of the member insurer's net direct 20 written premiums for the [PRECEDING] calendar year  preceding the 21 assessment  on the kinds of insurance in the account; 22   (C) the association may pay claims in any order that it 23 determines reasonable, including the payment of claims as they are 24 received from claimants or in groups or categories of claims; however,  if 25 the maximum assessment, together with the other assets of the association in 26 any account, does not provide in any one year in any account an amount 27 sufficient to make all necessary payments from that account, the funds 28 available shall be prorated ,  and the unpaid portion shall be paid as soon 29 thereafter as funds become available; 30   (D)  the association may [EXEMPT OR] defer, in whole or in 31 part, an assessment of any member insurer [,] if the assessment would endanger 01 the ability of the member insurer to fulfill the insurer's contractual obligations 02 or cause the member insurer's financial statement to reflect amounts of capital 03 or surplus less than the minimum amounts required for a certificate of authority 04 by any jurisdiction in which the member insurer is authorized to transact 05 insurance;  however, during the period of deferment, the member insurer 06 may not pay dividends to shareholders or policyholders; a deferred 07 assessment may only be paid when the payment does not reduce capital or 08 surplus below minimums required by law; a member insurer who pays a 09 larger assessment as a result of a deferment given to another member 10 insurer shall receive a refund when the deferment ends or, at the election 11 of the member insurer, receive a credit against future assessments; 12  (E)  each member insurer may set off against an assessment [,] 13 authorized payments made on covered claims and expenses incurred in the 14 payment of these claims by the member insurer if they are chargeable to the 15 account for which the assessment is made; 16  (4) shall investigate claims brought against the association ,  [AND] 17 adjust, compromise, settle, and pay covered claims to the extent of the association's 18 obligation ,  and deny all other claims ,  and may review settlements, releases, and 19 judgments to which the insolvent insurer or its insureds were parties to determine the 20 extent to which settlements, releases, and judgments may be properly contested; 21  (5)  may, subject to AS 21.89.100, appoint, substitute, or direct legal 22 counsel retained under an insurance policy for the defense of a covered claim  23 [SHALL NOTIFY PERSONS UNDER AS 21.80.080(b)(1)]; 24  (6) shall handle claims through its employees or through one or more 25 insurers or other persons designated as servicing facilities; a servicing facility shall 26 operate and maintain its principal office in this state unless the use of a servicing 27 facility located outside of the state would result in operating cost savings of at least 28 10 percent and would not result in material delay in claim payments; designation of 29 a servicing facility is subject to the approval of the director, but designation may be 30 declined by a member insurer; 31  (7) shall reimburse each servicing facility for obligations of the 01 association paid by the facility and for expenses incurred by the facility while handling 02 claims on behalf of the association and shall pay the other expenses of the association 03 authorized by this chapter. 04  (b) The association may 05  (1) employ or retain those persons necessary to handle claims and 06 perform other duties of the association; 07  (2) borrow funds necessary to effect the purposes of this chapter in 08 accord with the plan of operation; 09  (3) sue or be sued; 10  (4) negotiate and become a party to those contracts  that  [AS] are 11 necessary to carry out the purposes of this chapter; 12  (5) perform all other acts necessary or proper to  carry out  13 [EFFECTUATE] the purposes 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  17 [DIRECTORS] finds that the assets of the association in any account exceed the 18 liabilities of that account as estimated by the board of  governors  [DIRECTORS] for 19 the coming year [; 20  (7) APPEAR IN, DEFEND, AND APPEAL ANY ACTION ON A 21 CLAIM BROUGHT AGAINST THE ASSOCIATION]. 22 * Sec. 8. AS 21.80.070(c) is amended to read: 23  (c) The plan of operation must 24  (1) establish the procedures whereby all the powers and duties of the 25 association under AS 21.80.060 will be performed; 26  (2) establish procedures for handling assets of the association , 27 including procedures for handling assets received from the estate of an insolvent 28 insurer ; 29  (3) establish the amount and method of reimbursing members of the 30 board of  governors  [DIRECTORS] under AS 21.80.050; 31  (4) establish procedures by which claims may be filed with the 01 association and establish acceptable forms of proof of covered claims; notice of claims 02 to the receiver or liquidator of the insolvent insurer is considered notice to the 03 association or its agent ,  and a list of these claims shall be periodically submitted to the 04 association or similar organization in another state by the receiver or liquidator; 05  (5) establish regular places and times for meetings of the board of 06  governors  [DIRECTORS]; 07  (6) establish procedures for records to be kept of all financial 08 transactions of the association, its agents, and the board of  governors  [DIRECTORS]; 09  (7) provide that any member insurer aggrieved by a final action or 10 decision of the association may appeal to the director within 30 days after the action 11 or decision; 12  (8) establish the procedures whereby selections for the board of 13  governors  [DIRECTORS] will be submitted to the director; 14  (9)  provide for a member insurer serving on the board of governors 15 to appoint an individual to represent the member insurer on the board, including 16 appointment of an alternate or substitute representative for the appointed person; 17  (10)  contain additional provisions necessary or proper for the execution 18 of the powers and duties of the association. 19 * Sec. 9. AS 21.80.080 is amended to read: 20  Sec. 21.80.080. Duties and powers of the director. (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  [DIRECTORS], provide the 25 association with a statement of the net direct written premiums of each member 26 insurer. 27  (b) The director may 28  (1) [REQUIRE THAT THE ASSOCIATION NOTIFY THE 29 INSUREDS OF THE INSOLVENT INSURER AND ANY OTHER INTERESTED 30 PARTIES OF THE DETERMINATION OF INSOLVENCY AND OF THEIR 31 RIGHTS UNDER THIS CHAPTER; THIS NOTIFICATION SHALL BE BY MAIL 01 AT THEIR LAST KNOWN ADDRESS, WHEN AVAILABLE, BUT IF SUFFICIENT 02 INFORMATION FOR NOTIFICATION BY MAIL IS NOT AVAILABLE, NOTICE 03 BY PUBLICATION IN A NEWSPAPER OF GENERAL CIRCULATION IS 04 SUFFICIENT; 05  (2)] suspend or revoke, after notice and hearing, the certificate of 06 authority to transact insurance in this state of any member insurer that fails to pay an 07 assessment when due or fails to comply with the plan of operation; as an alternative, 08 the director may levy a fine on any member insurer that fails to pay an assessment 09 when due; this fine may not exceed five percent of the unpaid assessment per month 10 or portion of a month, except that a fine may not be less than $250 a month; 11   (2)  [(3)] revoke the designation of any servicing facility upon a finding 12 that claims are being handled unsatisfactorily; 13   (3)  [(4)] upon a finding by the superior court that the board of 14  governors  [DIRECTORS] has failed to comply with a requirement of this chapter or 15 the plan of operation, assume the powers of the board of  governors  [DIRECTORS] 16 under AS 21.80.060. 17 * Sec. 10. AS 21.80.090(a) is amended to read: 18  (a) A person recovering under this chapter is considered to have assigned the 19 person's rights under the policy to the association to the extent of the recovery from 20 the association. Every insured or claimant seeking the protection of this chapter shall 21 cooperate with the association to the same extent as the person would have been 22 required to cooperate with the insolvent insurer. The association  does not have a  23 [HAS NO] cause of action against the insured of the insolvent insurer for any sums 24  the association  [IT] has paid out except  a cause  [THOSE CAUSES] of action [AS] 25 the insolvent insurer would have had if the sums had been paid by the insolvent 26 insurer  and except as provided under (b) of this section . In the case of an insolvent 27 insurer operating on a plan with assessment liability, payments of claims of the 28 association do not operate to reduce the liability of insured to the receiver, liquidator, 29 or statutory successor for unpaid assessments. 30 * Sec. 11. AS 21.80.090(b) is amended to read: 31  (b)  The association or a similar organization in another state shall be 01 recognized as a claimant in the liquidation of an insolvent insurer for amounts 02 paid by the association or the similar organization on covered claims as 03 determined by this chapter or a similar law of another state and shall receive 04 distributions as provided under AS 21.78.260 or a similar law of another state.  05 The receiver, liquidator, or statutory successor of an insolvent insurer shall be bound 06 by settlements of covered claims by the association or a similar organization in another 07 state  to the extent the settlement satisfies obligations of the association. The 08 receiver may not be bound in any way by a settlement of covered claims to the 09 extent there remains a claim that exceeds the claims limit imposed under 10 AS 21.80.060 . The court having jurisdiction shall grant these claims priority  against 11 the assets of the insolvent insurer  equal to  the priority  that [WHICH] the claimant 12 would have been entitled to in the absence of this chapter [AGAINST THE ASSETS 13 OF THE INSOLVENT INSURER]. The expenses of the association or similar 14 organization in handling claims shall be accorded the same priority as the liquidator's 15 expenses. 16 * Sec. 12. AS 21.80 is amended by adding a new section to read: 17  Sec. 21.80.095. Prohibited claims. An insurer, reinsurer, insurance pool, or 18 underwriting association may not assert a claim against a person insured under a policy 19 issued by an insolvent insurer except for an amount not covered by the claims limit 20 established under AS 21.80.060. 21 * Sec. 13. AS 21.80.100(a) is amended to read: 22  (a) A person having a claim against an insurer , whether or not the insurer 23 is a member insurer,  under a provision in an insurance policy other than a policy of 24 an insolvent insurer  that  [WHICH] is also a covered claim [,] is required to exhaust 25 first the person's right under the policy.  An  [ANY] amount payable on a covered 26 claim under this chapter shall be reduced by the amount of recovery under the 27 insurance policy. 28 * Sec. 14. AS 21.80.110 is repealed and reenacted to read: 29  Sec. 21.80.110. Prevention of insolvencies. The board of governors may 30  (1) upon a majority vote, make recommendations to the director 31 regarding matters generally related to improving or enhancing regulation for insurer 01 solvency; or 02  (2) at the conclusion of an insurer insolvency in which the association 03 was obligated to pay covered claims, prepare a report on the history and causes of the 04 insolvency, based on the information available to the association, and submit this 05 report to the director. 06 * Sec. 15. AS 21.80.120 is amended to read: 07  Sec. 21.80.120. Examination of the association. The association is subject 08 to examination and regulation by the director. The board of  governors  [DIRECTORS] 09 shall submit, not later than  June  [MARCH] 30 of each year, a certified financial report 10 for the preceding calendar year in a form approved by the director. 11 * Sec. 16. AS 21.80.150 is amended to read: 12  Sec. 21.80.150. Immunity. There is no liability on the part of and a cause of 13 action of any nature may not arise against a member insurer, the association or its 14 agents or employees, the board of  governors or a person serving as an alternate or 15 substitute representative of a governor  [DIRECTORS], or the director or 16 representatives of the director for action taken  or a failure to act  by them in the 17 performance of their powers and duties under this chapter. However, [THIS] immunity 18 from liability  under this section  does not apply to wilful or wanton misconduct. 19 * Sec. 17. AS 21.80.160 is amended to read: 20  Sec. 21.80.160. Stay of proceedings and reopening of default judgments. 21 All proceedings in which the insolvent insurer is a party or is obligated to defend a 22 party in a court in this state shall , subject to waiver by the board of governors of 23 the association in specific cases involving covered claims,  be stayed for  90  [60] days 24  or additional time as ordered by a court  from the date the insolvency is determined 25  or an ancillary proceeding is instituted in this state, whichever is later,  to permit 26 proper defense by the association for all pending causes of action as to any covered 27 claims arising from a judgment under a decision, verdict, or finding based on the 28 default of the insolvent insurer or its failure to defend an insured. The association, 29 either on its own behalf or on behalf of the insured, may apply to have this judgment, 30 order, decision, verdict, or finding set aside by the same court or administrator that 31 made the judgment, order, decision, verdict, or finding and shall be permitted to defend 01 against the claim on the merits. 02 * Sec. 18. AS 21.80.180 is repealed and reenacted to read: 03  Sec. 21.80.180. Definitions. In this chapter, unless the context requires 04 otherwise, 05  (1) "account" means any one of the three accounts created by 06 AS 21.80.040(a); 07  (2) "affiliate of an insolvent insurer" means a person who directly or 08 indirectly, through one or more intermediaries, controls, is controlled by, or is under 09 common control with an insolvent insurer on December 31 of the year immediately 10 preceding the date the insurer becomes an insolvent insurer; 11  (3) "association" means the Alaska Insurance Guaranty Association; 12  (4) "claimant" means an insured making a first party claim or a person 13 making a liability claim; "claimant" does not include a person who is an affiliate of 14 an insolvent insurer; 15  (5) "control" has the meaning given in AS 21.22.200; 16  (6) "covered claim" means an unpaid claim, including one of unearned 17 premiums, that arises out of and is within the coverage and not in excess of the 18 applicable limits of an insurance policy issued by an insurer to which this chapter 19 applies if the insurer becomes an insolvent insurer and (A) the claimant or insured is 20 a resident of this state at the time of the insured event, or (B) the claim is a first party 21 claim for damage to property that is permanently located in this state; "covered claim" 22 does not include an amount awarded for punitive or exemplary damages, an amount 23 sought as a return of premium under a retroactive rating plan, or an amount due a 24 reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries 25 or otherwise; 26  (7) "insolvent insurer" means an insurer 27  (A) authorized to transact insurance in this state either at the 28 time the policy was issued or when the insured event occurred, except an 29 assessable reciprocal insurer formed by and insuring only municipalities or 30 nonprofit public utilities, a reciprocal insurer formed under AS 21.75 to provide 31 marine insurance, and a joint insurance arrangement formed under AS 21.76, 01 either at the time the policy was issued or when the insured event occurred, 02 and 03  (B) against which a court of competent jurisdiction in the 04 insurer's state of domicile has made a final order of liquidation with a finding 05 of insolvency; 06  (8) "member insurer" means a person, except an assessable reciprocal 07 insurer formed by and insuring only municipalities or nonprofit public utilities, a 08 reciprocal insurer formed under AS 21.75 to provide marine insurance, and a joint 09 insurance arrangement formed under AS 21.76, who 10  (A) writes insurance to which this chapter applies under 11 AS 21.80.020, including the exchange of reciprocal or interinsurance contracts; 12 and 13  (B) is authorized to transact insurance in the state; 14  (9) "net direct written premiums" means direct gross premiums written 15 in this state on insurance policies to which this chapter applies, less return premiums 16 thereon and dividends paid or credited to policyholders on direct business; "net direct 17 written premiums" does not include premiums on contracts between insurers or 18 reinsurers; 19  (10) "resident" means, for a person other than an individual, the state 20 in which the person's principal place of business is located at the time of the insured 21 event. 22 * Sec. 19. The uncodified law of the State of Alaska is amended by adding a new section 23 to read: 24 TRANSITIONAL PROVISIONS. The terms of the members of the board of governors 25 of the Alaska Insurance Guaranty Association who are serving on the effective date of this Act 26 are not affected by this Act. Their terms expire as provided before the enactment of this Act.