Substitute House Bill No. 6899
Substitute House Bill No. 6899
PUBLIC ACT NO. 97-125
AN ACT CONCERNING THE CONNECTICUT INSURANCE
GUARANTY ASSOCIATION ACT.
Be it enacted by the Senate and House of
Representatives in General Assembly convened:
Section 1. Section 38a-837 of the general
statutes is repealed and the following is
substituted in lieu thereof:
Sections 38a-836 to 38a-853, inclusive, AS
AMENDED BY THIS ACT, shall apply to all kinds of
direct insurance, except: [life, title, surety,
accident and health, credit, financial guaranty,
mortgage guaranty, ocean marine, and flood
insurance pursuant to the federal Flood Disaster
Protection Act of 1973, as amended.]
(1) LIFE, ANNUITY, HEALTH OR DISABILITY
INSURANCE;
(2) MORTGAGE GUARANTY, FINANCIAL GUARANTY OR
OTHER FORMS OF INSURANCE OFFERING PROTECTION
AGAINST INVESTMENT RISKS;
(3) FIDELITY OR SURETY OR ANY BONDING
OBLIGATIONS;
(4) CREDIT INSURANCE, VENDORS' SINGLE
INTEREST INSURANCE, OR COLLATERAL PROTECTION
INSURANCE OR ANY SIMILAR INSURANCE PROTECTING THE
INTERESTS OF A CREDITOR ARISING OUT OF A
CREDITOR-DEBTOR TRANSACTION;
(5) INSURANCE OF WARRANTIES OR SERVICE
CONTRACTS, INCLUDING INSURANCE THAT PROVIDES FOR
THE REPAIR, REPLACEMENT OR SERVICE OF GOODS OR
PROPERTY, OR INDEMNIFICATION FOR REPAIR,
REPLACEMENT OR SERVICE, FOR THE OPERATIONAL OR
STRUCTURAL FAILURE OF THE GOODS OR PROPERTY DUE TO
A DEFECT IN MATERIALS, WORKMANSHIP OR NORMAL WEAR
AND TEAR, OR THAT PROVIDES REIMBURSEMENT FOR THE
LIABILITY INCURRED BY THE ISSUER OF AGREEMENTS OR
SERVICE CONTRACTS THAT PROVIDE SUCH BENEFITS;
(6) TITLE INSURANCE;
(7) OCEAN MARINE INSURANCE;
(8) ANY TRANSACTION OR COMBINATION OF
TRANSACTIONS BETWEEN A PERSON, INCLUDING
AFFILIATES OF SUCH PERSON, AND AN INSURER,
INCLUDING AFFILIATES OF SUCH INSURER, WHICH
INVOLVES THE TRANSFER OF INVESTMENT OR CREDIT RISK
UNACCOMPANIED BY TRANSFER OF INSURANCE RISK;
(9) ANY INSURANCE PROVIDED BY OR GUARANTEED
BY GOVERNMENT; OR
(10) FLOOD INSURANCE PURSUANT TO THE FEDERAL
FLOOD DISASTER PROTECTION ACT OF 1973, AS AMENDED,
42 USC SECTION 4001, ET SEQ.
Sec. 2. Section 38a-838 of the general
statutes is repealed and the following is
substituted in lieu thereof:
The following terms as used in sections
38a-836 to 38a-853, inclusive, AS AMENDED BY THIS
ACT, unless the context otherwise requires or a
different meaning is specifically prescribed,
shall have the following meanings:
(1) "Account" means any one of the three
accounts created by section 38a-839;
(2) "Affiliate" means any affiliate, as
defined in section 38a-1, of an insolvent insurer
on December thirty-first of the year next
preceding the date the insurer becomes an
insolvent insurer;
(3) "Association" means the Connecticut
Insurance Guaranty Association created under
section 38a-839;
(4) "Claimant" means any person filing a
first party or liability claim against the
association, provided no person who is an
affiliate of the insolvent insurer AT THE TIME THE
POLICY WAS ISSUED OR AT THE TIME OF THE INSURED
EVENT may be a claimant;
(5) "Commissioner" means the Insurance
Commissioner;
(6) "Covered claim" means an unpaid claim,
including, but not limited to, one for unearned
premiums, which arises out of and is within the
coverage and subject to the applicable limits of
an insurance policy to which sections 38a-836 to
38a-853, inclusive, AS AMENDED BY THIS ACT, apply
issued by an insurer, if such insurer becomes an
insolvent insurer after October 1, 1971, and (a)
the claimant is a resident of this state at the
time of the insured event; or (b) the claimant is
not a resident of this state, but only under all
of the following conditions: (i) The insured is a
resident of this state at the time of the insured
event; (ii) the insolvent insurer is licensed to
do business in this state at the time of the
insured event; (iii) the state of the claimant's
residence has an association similar to the
association created by said sections; and (iv)
such claimant is refused coverage by such
association because the insolvent insurer is not
licensed to do business in the state of the
claimant's residence at the time of the insured
event; or (c) the [property from which the claim
arises is permanently located] CLAIM IS A FIRST
PARTY CLAIM FOR DAMAGE TO PROPERTY WITH A
PERMANENT LOCATION in this state, provided the
term "covered claim" shall not include any [amount
due] CLAIM BY OR FOR THE BENEFIT OF any reinsurer,
insurer, insurance pool, or underwriting
association, as subrogation recoveries or
otherwise; provided that a claim for any such
amount, asserted against a person insured under a
policy issued by an insurer which has become an
insolvent insurer, which, if it were not a claim
by or for the benefit of a reinsurer, insurer,
insurance pool or underwriting association, would
be a "covered claim" may be filed directly with
the receiver of the insolvent insurer but in no
event shall any such claim be asserted against the
insured of such insolvent insurer. A claim shall
not be a "covered claim" if it is filed by or on
behalf of an individual who is neither a citizen
of the United States nor an alien legally resident
in the United States at the time of the insured
event, or an entity other than an individual whose
principal place of business is not in the United
States at the time of the insured event, and it
arises out of an accident, occurrence, offense,
act, error or omission that takes place outside of
the United States, or a loss to property normally
located outside of the United States or, if a
workers' compensation claim, it arises out of
employment outside of the United States;
(7) "Insolvent insurer" means [(a)] an
insurer (a) licensed to transact insurance in this
state either at the time the policy was issued or
when the insured event occurred and (b) determined
to be insolvent by a court of competent
jurisdiction, provided the term "insolvent
insurer" shall not be construed to mean any
insurer with respect to which an order, decree,
judgment or finding of insolvency, whether
permanent or temporary in nature, or order of
rehabilitation or conservation has been issued by
a court of competent jurisdiction prior to October
1, 1971;
(8) "Member insurer" means any person who (a)
writes any kind of insurance to which sections
38a-836 to 38a-853, inclusive, AS AMENDED BY THIS
ACT, apply under section 38a-837, including but
not limited to the exchange of reciprocal or
interinsurance contracts, and (b) is licensed to
transact insurance in this state. AN INSURER SHALL
CEASE TO BE A MEMBER INSURER EFFECTIVE ON THE DAY
FOLLOWING THE TERMINATION OR EXPIRATION OF ITS
LICENSE TO TRANSACT THE KINDS OF INSURANCE TO
WHICH SAID SECTIONS 38a-836 TO 38a-853, INCLUSIVE,
APPLY, HOWEVER SUCH INSURER SHALL REMAIN LIABLE AS
A MEMBER INSURER FOR ANY OBLIGATIONS, INCLUDING
OBLIGATIONS FOR ASSESSMENTS LEVIED PRIOR TO THE
TERMINATION OR EXPIRATION OF THE INSURER'S LICENSE
AND FOR ASSESSMENTS LEVIED AFTER THE TERMINATION
OR EXPIRATION WHICH RELATE TO ANY INSURER WHICH
BECAME AN INSOLVENT INSURER PRIOR TO THE
TERMINATION OR EXPIRATION OF SUCH INSURER'S
LICENSE. IN THE CASE OF SUCH INSURER, THE AVERAGE
OF ITS NET DIRECT WRITTEN PREMIUM FOR THE FIVE
CALENDAR YEARS PRIOR TO EXPIRATION OR TERMINATION
OF ITS LICENSE, WHETHER OR NOT THE INSURER HAS NET
DIRECT WRITTEN PREMIUM IN THE YEAR PRECEDING SUCH
EXPIRATION OR TERMINATION, SHALL BE USED AS ITS
ASSESSMENT BASE FOR ANY YEAR FOLLOWING SUCH
EXPIRATION OR TERMINATION IN WHICH THE INSURER HAS
NO DIRECT WRITTEN PREMIUM;
(9) "Net direct written premiums" means
direct gross premiums written in this state on
insurance policies to which sections 38a-836 to
38a-853, inclusive, AS AMENDED BY THIS ACT, apply,
less return premiums thereon and dividends paid or
credited to policyholders on such direct business,
provided the term "net direct written premiums"
shall not include premiums on any contract between
insurers or reinsurers;
(10) "Person" [has the meaning assigned to it
by section 38a-1] MEANS AN INDIVIDUAL,
CORPORATION, PARTNERSHIP, ASSOCIATION, JOINT STOCK
COMPANY, BUSINESS TRUST, LIMITED LIABILITY
COMPANY, UNINCORPORATED ORGANIZATION, VOLUNTARY
ORGANIZATION, GOVERNMENTAL ENTITY OR OTHER LEGAL
ENTITY;
(11) "Residence" means, when used in
reference to a corporation, its principal place of
business;
(12) "United States" has the meaning assigned
to it by section 38a-1.
Sec. 3. Section 38a-841 of the general
statutes is repealed and the following is
substituted in lieu thereof:
(1) Said association shall: (a) Be obligated
to the extent of the covered claims existing prior
to the determination of insolvency and arising
within thirty days after the determination of
insolvency, or before the policy expiration date
if less than thirty days after the determination,
or before the insured replaces the policy or
causes its cancellation, if he does so within
thirty days of such determination, provided such
obligation shall be limited as follows: (i) With
respect to covered claims for unearned premiums,
to one-half of the unearned premium on any policy,
subject to a maximum of two thousand dollars per
policy; (ii) with respect to covered claims other
than for unearned premiums, such obligation shall
include only that amount of each such claim which
is in excess of one hundred dollars and is less
than three hundred thousand dollars, except that
said association shall pay the full amount of any
such claim arising out of a workers' compensation
policy, provided in no event shall (A) said
association be obligated to any claimant in an
amount in excess of the obligation of the
insolvent insurer under the policy form or
coverage from which the claim arises, or (B) said
association be obligated for any claim filed with
the association after the expiration of two years
from the date of the declaration of insolvency;
(b) be deemed the insurer to the extent of its
obligations on the covered claims and to such
extent shall have all rights, duties, and
obligations of the insolvent insurer as if the
insurer had not become insolvent; (c) allocate
claims paid and expenses incurred among the three
accounts, created by section 38a-839, separately,
and assess member insurers separately (i) in
respect of each such account for such amounts as
shall be necessary to pay the obligations of said
association under subdivision (a) of subsection
(1) of this section subsequent to an insolvency;
(ii) the expenses of handling covered claims
subsequent to an insolvency; (iii) the cost of
examinations under section 38a-846, AS AMENDED BY
THIS ACT, and (iv) such other expenses as are
authorized by sections 38a-836 to 38a-853,
inclusive, AS AMENDED BY THIS ACT. The assessments
of each member insurer shall be in the proportion
that the net direct written premiums of such
member insurer for the calendar year preceding the
assessment on the kinds of insurance in such
account bears to the net direct written premiums
of all member insurers for the calendar year
preceding the assessment on the kinds of insurance
in such account. Each member insurer shall be
notified of its assessment not later than thirty
days before it is due. No member insurer may be
assessed in any year on any account an amount
greater than two per cent of that member insurer's
net direct written premiums for the calendar year
preceding the assessment on the kinds of insurance
in said account, provided if, at the time an
assessment is levied on the "all other insurance"
account, as defined in subdivision (c) of section
38a-839, the board of directors finds that at
least fifty per cent of the total net direct
written premiums of a member insurer and all its
affiliates, for the year on which such assessment
is based, were from policies issued or delivered
in Connecticut, on risks located in this state,
such member insurer shall be assessed only on such
member insurer's net direct written premium that
is attributable to the kind of insurance that
gives rise to each covered claim. If the maximum
assessment, together with the other assets of said
association in any account, does not provide in
any one year in any account an amount sufficient
to make all necessary payments from that account,
the funds available may be prorated and the unpaid
portion shall be paid as soon thereafter as funds
become available. Said association may defer, in
whole or in part, the assessment of any member
insurer, if the assessment would cause the member
insurer's financial statement to reflect amounts
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 provided that
during the period of deferment, no dividends shall
be paid to shareholders or policyholders. Deferred
assessments shall be paid when such payment will
not reduce capital or surplus below the minimum
amounts required for a certificate of authority.
Such payments shall be refunded to those insurers
receiving greater assessments because of such
deferment or, at the election of the insurer, be
credited against future assessments. Each member
insurer serving as a servicing facility may set
off against any assessment, authorized payments
made on covered claims and expenses incurred in
the payment of such claims by such member insurer
if they are chargeable to the account in respect
of which the assessment is made; (d) investigate
claims brought against said association and
adjust, compromise, settle, and pay covered claims
to the extent of said association's obligations,
and deny all other claims. The association shall
pay claims in any order it deems reasonable,
including but not limited to, payment in the order
of receipt or by classification. It may review
settlements, releases and judgments to which the
insolvent insurer or its insureds were parties to
determine the extent to which such settlements,
releases and judgments may be properly contested;
(e) notify such persons as the commissioner may
direct under subdivision (a) of subsection (2) of
section 38a-843; (f) handle claims through its
employees or through one or more insurers or other
persons designated by said association as
servicing facilities, provided such designation of
a servicing facility shall be subject to the
approval of the commissioner, and may be declined
by a member insurer; (g) reimburse each such
servicing facility for obligations of said
association paid by such facility and for expenses
incurred by such facility while handling claims on
behalf of said association and shall pay such
other expenses of said association as are
authorized by sections 38a-836 to 38a-853,
inclusive, AS AMENDED BY THIS ACT.
(2) Said association may: (a) Employ or
retain such persons as are necessary to handle
claims and perform other duties of said
association; (b) borrow such funds as may be
necessary from time to time to effect the purposes
of sections 38a-836 to 38a-853, inclusive, AS
AMENDED BY THIS ACT, in accord with the plan of
operation under section 38a-842; (c) sue or be
sued; (d) INTERVENE AS A MATTER OF RIGHT AS A
PARTY IN ANY PROCEEDING BEFORE ANY COURT IN THIS
STATE THAT HAS JURISDICTION OVER AN INSOLVENT
INSURER, AS DEFINED IN SECTION 38a-838; (e)
negotiate and become a party to such contracts as
are necessary to carry out the purpose of said
sections; [(e)] (f) perform such other acts as are
necessary or proper to effectuate the purpose of
said sections; [(f)] (g) refund to the member
insurers in proportion to the contribution of each
such member insurer to that account, that amount
by which the assets of the account exceed the
liabilities, if, at the end of any calendar year,
the board of directors finds that the assets of
said association in any account exceed the
liabilities of that account as estimated by the
board of directors for the coming year.
Sec. 4. Section 38a-844 of the general
statutes is repealed and the following is
substituted in lieu thereof:
(1) Any person recovering any moneys under
sections 38a-836 to 38a-853, inclusive, AS AMENDED
BY THIS ACT, shall be deemed to have assigned his
rights under the policy [, in respect of which he
is recovering,] to said association to the extent
of his recovery from said association. Every
insured or claimant seeking the protection of said
sections shall cooperate with said association to
the same extent as such person would have been
required to cooperate with the insolvent insurer.
Said association shall have no cause of action
against any insured of the insolvent insurer for
any sums it has paid out to such insured except
such causes of action as the insolvent insurer
would have had if such sums had been paid by the
insolvent insurer. In the case of an insolvent
insurer operating on a plan with assessment
liability, payments of claims of said association
shall not operate to reduce the liability of
insureds to the receiver, liquidator, or statutory
successor for unpaid assessments.
(2) The receiver, liquidator, or statutory
successor of an insolvent insurer shall be bound
by [settlements] DETERMINATIONS of covered
[claims] CLAIM ELIGIBILITY UNDER SECTIONS 38a-836
TO 38a-853, INCLUSIVE, AS AMENDED BY THIS ACT, AND
BY SETTLEMENTS OF CLAIMS made by said association
or any similar organization having a like function
to that of said association in another state. The
court having jurisdiction shall grant such claims
priority equal to that to which the claimant would
have been entitled in the absence of SAID sections
38a-836 to 38a-853, inclusive, against the assets
of the insolvent insurer. The expenses of said
association or any similar organization having a
like function to that of said association in
handling claims shall be accorded the same
priority as the receiver's or liquidator's
expenses.
(3) Said association shall periodically file
with the receiver or liquidator of the insolvent
insurer statements of the covered claims paid by
said association, the expenses paid for the
processing of covered claims paid or contested and
estimates of anticipated claims on said
association, and expenses of processing such
claims which shall preserve the rights of said
association against the assets of the insolvent
insurer.
(4) The association shall have the right to
recover from the following persons the amount of
any covered claim paid on behalf of such person
pursuant to sections 38a-836 to 38a-853,
inclusive, AS AMENDED BY THIS ACT: (a) 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 chapter; and (b) any insured whose net
worth on December thirty-first of the year next
preceding the date the insurer becomes an
insolvent insurer exceeds fifty million dollars
and whose liability obligations to other persons
are satisfied in whole or in part by payments made
under said sections.
Sec. 5. Section 38a-845 of the general
statutes is repealed and the following is
substituted in lieu thereof:
(1) Any person having a claim against an
insurer under any provision in an insurance
policy, other than a policy of an insolvent
insurer, which is also a covered claim under
sections 38a-836 to 38a-853, inclusive, AS AMENDED
BY THIS ACT, shall exhaust first his rights under
such policy. Any amount payable on a covered claim
under said sections shall be reduced by the amount
[of any recovery] RECOVERABLE under the claimant's
insurance policy or chapter 568.
(2) Any person having a claim which may be
recovered under more than one insurance guaranty
association or its equivalent having a like
function to that of said association shall seek
recovery first from the association operating in
the area of the residence of the claimant except
that if it is a first party claim for damage to
property with a permanent location, such person
shall seek recovery first from the association
operating in the location of the property. Any
recovery under sections 38a-836 to 38a-853,
inclusive, AS AMENDED BY THIS ACT, shall be
reduced by the amount [of recovery] RECOVERABLE
from any other insurance guaranty association or
its equivalent having a like function to that of
said association.
(3) ANY PERSON HAVING A CLAIM UNDER ANY
GOVERNMENTAL INSURANCE OR GUARANTY PROGRAM WHICH
SUCH CLAIM IS ALSO A COVERED CLAIM SHALL BE
REQUIRED TO FIRST EXHAUST HIS RIGHTS UNDER SUCH
PROGRAM. ANY AMOUNT PAYABLE ON A COVERED CLAIM
UNDER SECTIONS 38a-836 TO 38a-853, INCLUSIVE, AS
AMENDED BY THIS ACT, SHALL BE REDUCED BY ANY
AMOUNT RECOVERABLE UNDER SUCH PROGRAM.
Sec. 6. Section 38a-846 of the general
statutes is repealed and the following is
substituted in lieu thereof:
To aid in the detection and prevention of
insurer insolvencies:
(1) The board of directors, upon majority
vote, shall notify the commissioner of any
information which they may have indicating any
member insurer may be insolvent or in a financial
condition hazardous to its policyholders or the
public.
(2) The board of directors may, upon majority
vote, request that the commissioner order an
examination of any member insurer which the board
in good faith believes may be in a financial
condition hazardous to its policyholders or the
public. Within thirty days of the receipt of such
request, the commissioner shall begin such
examination. The examination may be conducted as a
National Association of Insurance Commissioners
examination or may be conducted by the
commissioner or by such persons as the
commissioner may designate. The cost of such
examination shall be paid by said association. In
no event shall such examination report be released
to the board of directors prior to its release to
the public, provided this shall not preclude the
commissioner from complying with [subsection]
SUBDIVISION (3) of this section. The commissioner
shall notify the board of directors when the
examination is completed. The request for an
examination shall be kept on file by the
commissioner but it shall not be open to public
inspection prior to the release of the examination
report to the public.
(3) The commissioner shall report to the
board of directors when he has reasonable cause to
believe that any member insurer examined or being
examined at the request of the board of directors
may be insolvent or in a financial condition
hazardous to its policyholders or the public.
(4) The board of directors may, upon majority
vote, make reports and recommendations to the
commissioner AND THE CHIEF INSURANCE REGULATORY
OFFICIAL IN ANY JURISDICTION upon any matter
germane to the solvency, liquidation,
rehabilitation or conservation of any member
insurer. Such reports and recommendations shall
not be considered public documents.
(5) The board of directors may, upon majority
vote, make recommendations to the commissioner AND
ANY OTHER PUBLIC OFFICIAL IN ANY JURISDICTION for
the detection and prevention of insurer
insolvencies.
(6) At the request of the commissioner, the
board of directors shall, at the conclusion of any
insurer insolvency in which said association was
obligated to pay any covered claim, prepare a
report on the history and causes of such
insolvency, based on the information available to
said association, and submit such report to the
commissioner.
Sec. 7. Section 38a-850 of the general
statutes is repealed and the following is
substituted in lieu thereof:
There shall be no liability on the part of
and no cause of action of any nature shall arise
against any member insurer, said association or
its agents or employees, the board of directors,
OR ANY PERSON SERVING AS AN ALTERNATE OR
SUBSTITUTE REPRESENTATIVE OF ANY DIRECTOR or the
commissioner or his representatives for any action
taken OR ANY FAILURE TO ACT by them in the
performance of their powers and duties under
sections 38a-836 to 38a-853, inclusive, AS AMENDED
BY THIS ACT.
Sec. 8. Section 38a-851 of the general
statutes is repealed and the following is
substituted in lieu thereof:
(a) All proceedings in which an insolvent
insurer is a party or is obligated to defend an
insured as a party in any court in this state
shall be stayed for up to six months and for such
additional time thereafter as may be determined by
the court from the date of declaration of
insolvency or from the time an ancillary
proceeding is instituted in the state, whichever
is later, to permit proper defense by said
association of all pending causes of action in the
case. Whenever any covered claims arise from a
judgment under any decision, verdict or finding
based on the default of an insolvent insurer or
based on such insolvent insurer's failure to
defend an insured, said association, either on its
own behalf or on behalf of such insured, may apply
to have such judgment, order, decision, verdict or
finding set aside by the same court or
administrator that made such judgment, order,
decision, verdict or finding and said association
may defend against any such claim on the merits of
the case.
(b) THE LIQUIDATOR, RECEIVER OR STATUTORY
SUCCESSOR OF AN INSOLVENT INSURER COVERED BY
SECTIONS 38a-836 TO 38a-853, INCLUSIVE, AS AMENDED
BY THIS ACT, SHALL PERMIT ACCESS BY THE BOARD OR
ITS AUTHORIZED REPRESENTATIVE TO SUCH INSOLVENT
INSURER'S RECORDS WHICH THE BOARD DETERMINES ARE
NECESSARY FOR THE BOARD TO CARRY OUT ITS FUNCTIONS
UNDER SAID SECTIONS 38a-836 TO 38a-853, INCLUSIVE,
WITH REGARD TO COVERED CLAIMS. THE LIQUIDATOR,
RECEIVER OR STATUTORY SUCCESSOR SHALL PROVIDE THE
BOARD OR ITS REPRESENTATIVE WITH COPIES OF SUCH
RECORDS UPON THE REQUEST OF THE BOARD.
Sec. 9. This act shall take effect July 1,
1997.
Approved June 6, 1997