Bill Text: CA AB2230 | 2013-2014 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Insurance: Workers' Comp Bond Fund: assessments.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2014-06-28 - Chaptered by Secretary of State - Chapter 76, Statutes of 2014. [AB2230 Detail]

Download: California-2013-AB2230-Amended.html

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BILL NUMBER: AB 2230	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MARCH 28, 2014

INTRODUCED BY   Assembly Member Cooley

                        FEBRUARY 20, 2014

   An act to amend  Section   Sections 1063.2,
1063.5, and  1063.74  of the  Insurance Code, relating
to insurance.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 2230, as amended, Cooley. Insurance: Workers'  Comp
  Compensation  Bond Fund: assessments.
   Existing law creates the California Insurance Guarantee
Association (CIGA) and requires all insurers admitted to transact
insurance in this state to become members. CIGA is required to
collect premium payments from members to discharge its obligations to
cover claims of an insolvent insurer.  Existing law provides
that CIGA shall be a party in interest in all proceedings involving a
covered claim, and has all of the rights an insolvent insurer would
have if the insurer was not in liquidation.  CIGA is required to
allocate its claim payments and costs based on categories of
insurance, including, but not limited to, workers' compensation
claims and homeowners' claims. The premium payments from each
category are separate and required to be used to pay the claims and
costs allocated to that category.  Existing law provides that the
premium charged to a member insurer for any of the categories of
insurance is 1% of the net direct written premium, as defined,
written in the category by the member per year. 
   Existing law authorizes CIGA to request the issuance of bonds by
the California Infrastructure and Economic Development Bank to pay
for covered claims that arise as a result of the insolvency of
workers' compensation insurers. Proceeds from the sale of the bonds
are deposited in the Workers' Comp Bond Fund, and CIGA distributes
this money to pay covered claims. Principal and interest on the bonds
are paid from special bond assessments levied by CIGA on workers'
compensation insurers, as provided.
   This bill  would delete   the provisions regarding
CIGA as a party in interest for proceedings involving covered claims.
The bill would, commencing January 1, 2015, provide that the premium
charged to a member insurer for a category of insurance would be 2%
of the net direct written premium, unless there are outstanding
bonds, as specified, in which case the premium would not exceed 1% of
the net direct written premium for any category of insurance for
which the bond proceeds are being used to pay claims and expenses.
The bill  would prohibit, once all the bonds issued pursuant to
these provisions are redeemed, further  initial  special
bond assessments from being levied or made. The bill would require
that any premium adjustments applicable to the special bond
assessments continue to be made and determined, and that any credits
or charges that result from the premium adjustments be credited or
charged to the workers' compensation assessments that the insurers
are otherwise required to pay CIGA.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


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

   SECTION 1.    Section 1063.2 of the  
Insurance Code   is amended to read: 
   1063.2.  (a) The association shall pay and discharge covered
claims and in connection therewith pay for or furnish loss adjustment
services and defenses of claimants when required by policy
provisions. It may do so either directly by itself or through a
servicing facility or through a contract for reinsurance and
assumption of liabilities by one or more member insurers or through a
contract with the liquidator, upon terms satisfactory to the
association and to the liquidator, under which payments on covered
claims would be made by the liquidator using funds provided by the
association.
   (b) The association  shall be a party in interest in all
proceedings involving a covered claim, and  shall have the
same rights as the insolvent insurer would have had if not in
liquidation, including, but not limited to, the right to: (1) appear,
defend, and appeal a claim in a court of competent jurisdiction, (2)
receive notice of, investigate, adjust, compromise, settle, and pay
a covered claim, and (3) investigate, handle, and deny a noncovered
claim. The association shall have no cause of action against the
insureds of the insolvent insurer for any sums it has paid out,
except as provided by this article.
   (c) (1) If damages against uninsured motorists are recoverable by
the claimant from his or her own insurer, the applicable limits of
the uninsured motorist coverage shall be a credit against a covered
claim payable under this article. Any person having a claim that may
be recovered under more than one insurance guaranty association or
its equivalent shall seek recovery first from the association of the
place of residence of the insured, except that if it is a first-party
claim for damage to property with a permanent location, he or she
shall seek recovery first from the association of the permanent
location of the property, and if it is a workers' compensation claim,
he or she shall seek recovery first from the association of the
residence of the claimant. Any recovery under this article shall be
reduced by the amount of recovery from any other insurance guaranty
association or its equivalent. A member insurer may recover in
subrogation from the association only one-half of any amount paid by
that insurer under uninsured motorist coverage for bodily injury or
wrongful death (and nothing for a payment for anything else), in
those cases where the injured person insured by such an insurer has
proceeded under his or her uninsured motorist coverage on the ground
that the tortfeasor is uninsured as a result of the insolvency of his
or her liability insurer (an insolvent insurer as defined in this
article), provided that the member insurer shall waive all rights of
subrogation against the tortfeasor. Any amount paid a claimant in
excess of the amount authorized by this section may be recovered by
action, or other proceeding, brought by the association.
   (2) Any claimant having collision coverage on a loss that is
covered by the insolvent company's liability policy shall first
proceed against his or her collision carrier. Neither that claimant
nor the collision carrier, if it is a member of the association,
shall have the right to sue or continue a suit against the insured of
the insolvent insurance company for that collision damage.
   (d) The association shall have the right to recover from any
person who is an affiliate of the insolvent insurer and whose
liability obligations to other persons are satisfied in whole or in
part by payments made under this article the amount of any covered
claim and allocated claims expense paid on behalf of that person
pursuant to this article.
   (e) Any person having a claim or legal right of recovery under any
governmental insurance or guaranty program which is also a covered
claim, shall be required to first exhaust his or her right under the
program. Any amount payable on a covered claim shall be reduced by
the amount of any recovery under the program.
   (f) "Covered claims" for unearned premium by lenders under
insurance premium finance agreements as defined in Section 673 shall
be computed as of the earliest cancellation date of the policy
pursuant to Section 673.
   (g) "Covered claims" shall not include any judgments against or
obligations or liabilities of the insolvent insurer or the
commissioner, as liquidator, or otherwise resulting from alleged or
proven torts, nor shall any default judgment or stipulated judgment
against the insolvent insurer, or against the insured of the
insolvent insurer, be binding against the association.
   (h) "Covered claims" shall not include any loss adjustment
expenses, including adjustment fees and expenses, attorney's fees and
expenses, court costs, interest, and bond premiums, incurred prior
to the appointment of a liquidator.
   SEC. 2.    Section 1063.5 of the   Insurance
Code   is amended to read: 
   1063.5.  Each time an insurer becomes insolvent then, to the
extent necessary to secure funds for the association for payment of
covered claims of that insolvent insurer and also for payment of
reasonable costs of adjusting the claims, the association shall
collect premium payments from its member insurers sufficient to
discharge its obligations. The association shall allocate its claim
payments and costs, incurred or estimated to be incurred, to one or
more of the following categories: (a) workers' compensation claims;
(b) homeowners' claims, and automobile claims, which shall include:
automobile material damage, automobile liability (both personal
injury and death and property damage), medical payments and uninsured
motorist claims; and (c) claims other than workers' compensation,
homeowners', and automobile, as above defined. Separate premium
payments shall be required for each category. The premium payments
for each category shall be used to pay the claims and costs allocated
to that category. The rate of premium charged shall be a uniform
percentage of net direct written premium in the preceding calendar
year applicable to that category. The rate of premium charges to each
member in the appropriate categories shall initially be based on the
written premium of each insurer as shown in the latest year's annual
financial statement on file with the commissioner. The initial
premium shall be adjusted by applying the same rate of premium charge
as initially used to each insurer's written premium as shown on the
annual statement for the second year following the year on which the
initial premium charge was based. The difference between the initial
premium charge and the adjusted premium charge shall be charged or
credited to each member insurer by the association as soon as
practical after the filing of the annual statements of the member
insurers with the commissioner for the year on which the adjusted
premium is based. Any credit due in a specific category to a member
insurer as a result of the adjusted premium calculation may be
refunded to the member insurer at the discretion of the association
if the member insurer has agreed with the commissioner to no longer
write insurance in that category but has not withdrawn from the state
and surrendered its certificate of authority. However, in the case
of an insurer that was a member insurer when the initial premium
charge was made and that paid the initial assessment but is no longer
a member insurer at the time of the adjusted premium charge by
reason of its insolvency or its withdrawal from the state and
surrender of its certificate of authority to transact insurance in
this state, any credit accruing to that insurer shall be refunded to
it by the association. "Net direct written premiums" shall mean the
amount of gross premiums, less return premiums, received in that
calendar year upon business done in this state, other than premiums
received for reinsurance. In cases of a dispute as to the amount of
the net direct written premium between the association and one of its
members the written decision of the commissioner shall be final. The
premium charged to any member insurer for any of the three
categories or a category established by the association shall not be
more than 2 percent of the net direct premium written in that
category in this state by that member per year, starting on January
1, 2003, until December 31, 2007, and thereafter shall be 1 percent
per  year.   year, until January 1, 2015.
Commencing January 1, 2015, the premium charged to any member insurer
for any of the three categories or a category established by the
association shall not be more than 2 percent of the net direct
written premium unless there are bonds outstanding that  
were issued pursuant to Article 14.25 (commencing with Section
1063.50) or Article 14.26 (commencing with Section 1063.70). If bonds
issued pursuant to either article are outstanding, the premium
charged to a member insurer for the category for which the bond
proceeds are being used to pay claims and expenses shall not be more
than 1 percent of the net direct written premium for that category.
 The association may exempt or defer, in whole or in part, the
premium charge of any member insurer, if the premium charge would
cause the member insurer's financial statement to reflect an amount
of capital or surplus less than the minimum amounts required for a
certificate of authority by any jurisdiction in which the member
insurer is authorized to transact insurance. However, during the
period of deferment, no dividends shall be paid to shareholders or
policyholders by the company whose premium charge was deferred.
Deferred premium charges shall be paid when the payment will not
reduce capital or surplus below required minimums. These payments
shall be credited against future premium charges to those companies
receiving larger premium charges by virtue of the deferment. After
all covered claims of the insolvent insurer and expenses of
administration have been paid, any unused premiums and any
reimbursements or claims dividends from the liquidator remaining in
any category shall be retained by the association and applied to
reduce future premium charges in the appropriate category. However,
an insurer which ceases to be a member of the association, other than
an insurer that has become insolvent or has withdrawn from the state
and has surrendered its certificate of authority following an
initial assessment that is entitled to a refund based upon an
adjusted assessment as provided above in this section, shall have no
right to a refund of any premium previously remitted to the
association. The commissioner may suspend or revoke the certificate
of authority to transact business in this state of a member insurer
which fails to pay a premium when due and after demand has been made.

   Interest at a rate equal to the current federal reserve discount
rate plus 21/2 percent per annum shall be added to the premium of any
member insurer which fails to submit the premium requested by the
association within 30 days after the mailing request. However, in no
event shall the interest rate exceed the legal maximum.
   SECTION 1.   SEC. 3.   Section 1063.74
of the Insurance Code is amended to read:
   1063.74.  (a) Notwithstanding any other limits on assessments,
CIGA shall have the authority to levy upon member insurers special
bond assessments in the amount necessary to pay the principal of and
interest on the bonds, and to meet other requirements established by
agreements relating to the bonds. The assessments shall be collected
only from the member insurers providing workers' compensation
insurance, in the same manner as separate premium payments are used
to pay the claims and costs allocated to that category pursuant to
Section 1063.5. Special bond assessments made pursuant to this
section shall also be subject to the surcharge provisions in Sections
1063.14 and 1063.145.
   (b) Notwithstanding any other law, after all bonds issued pursuant
to this article have been redeemed, no further  initial 
special bond assessments shall be levied or made. Any premium
adjustments called for and described in Section 1063.5, as applied to
special bond assessments initially charged, shall continue to be
made and determined. Any credits or charges that result from the
premium adjustments on the special bond assessments shall be credited
or charged to the assessments called for and described in Section
1063.5.
   (c) In addition to the special bond assessments provided for in
this section, the board in its discretion and subject to other
obligations of the association, may utilize current funds of CIGA,
premium assessments made under Section 1063.5, and advances or
dividends received from the liquidators of insolvent insurers to pay
the principal and interest on any bonds issued at the board's request
and shall utilize, to the extent feasible, the recoveries from the
liquidators of the estates of insolvent workers' compensation
carriers to pay bonds issued at the board's request to fund workers'
compensation claims.