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 AS 21.80.020 is repealed and reenacted to read: 13 Sec. 21.80.020.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