Senate Bill No. 457

(By Senators Wooton, Walker, Snyder, Kessler and Sprouse)

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[Introduced February 11, 2000; referred to the Committee on Banking and Insurance.]




A BILL to amend and reenact sections five, eight, twelve and fourteen, article twenty-six, chapter thirty-three of the code of West Virginia, one thousand nine hundred thirty-one, as amended, all relating to clarifying that a "covered claim" means an unpaid claim under an insurance policy issued by an insolvent insurer; providing that covered claim does not include any amount for which an insured has obtained replacement coverage; providing that the West Virginia guaranty association ascends to the rights and obligations that otherwise would have been held by an insolvent insurer before the insurer became insolvent, including rights and obligations to defend the insured and to be held liable for an excess verdict in the event the plaintiff demands settlement within coverage limits; and providing that the report required by section fourteen of this article to be submitted to the insurance commissioner includes the amount of reserves and known claims for which the association is responsible and that a copy of the report be made available to member insurers upon request.

Be it enacted by the Legislature of West Virginia:
That sections five, eight, twelve and fourteen, article twenty-six, chapter thirty-three of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted, all to read as follows:
ARTICLE 26. WEST VIRGINIA INSURANCE GUARANTY ASSOCIATION ACT.

§33-26-5. Definitions.

As used in this article:
(1) "Account" means any one of the two accounts created by section six of this article.
(2) "Association" means the West Virginia insurance guaranty association created under section six of this article.
(3) "Commissioner" means the insurance commissioner of West Virginia.
(4) "Covered claim" means an unpaid claim, including one for unearned premiums other than retrospective premiums or other premiums subject to adjustment after the date of liquidation, which arises out of and is within the coverage of an insurance policy issued by an insolvent insurer to which this article applies and which policy is in force at the time of the occurrence giving rise to such unpaid claims if: (a) The insurer issuing the policy becomes an insolvent insurer after the effective date of this article; and (b) the claimant or insured is a resident of this state at the time of the insured occurrence, or the property from which the claim arises is permanently located in this state. "Covered claim" shall not include: (i) Any amount in excess of the applicable limits of coverage provided by an insurance policy to which this article applies; nor (ii) any amount due any reinsurer, insurer, insurance pool or underwriting association, as subrogation recoveries or otherwise from an insolvent insurer or the insured of an insolvent insurer to the extent of coverage under the insured's policy; nor (iii) any amount for which the insured has obtained replacement coverage.
(5) "Insolvent insurer" means 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) against whom an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction in the insurer's state of domicile or of this state.
(6) "Member insurer" means any person who: (a) Writes any kind of insurance to which this article applies under section three of this article, including farmers' mutual fire insurance companies and the exchange of reciprocal or interinsurance contracts; and (b) is licensed to transact insurance in this state.
(7) "Net direct written premiums" means direct gross premiums written in this state on insurance policies to which this article applies, less return premiums thereon and dividends paid or credited to policyholders on such direct business. "Net direct written premiums" does not include premiums on contracts between insurers or reinsurers.
(8) "Person" includes an individual, company, insurer, association, organization, society, reciprocal, partnership, syndicate, business trust, corporation or any other legal entity.
(9) "Receiver" means receiver, liquidator, rehabilitator or conservator as the context may require.
§33-26-8. Powers and duties of the association.

(1) The association shall:
(a) Be obligated to the extent of the covered claims existing prior to the determination of insolvency, and for such claims arising within thirty days after the determination of insolvency, but such obligation shall include only that amount of each covered claim which is in excess of one hundred dollars and is less than three thousand dollars up to the applicable limits of the insured's policy. In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligations of the insolvent insurer under the policy from which the claim arises. Notwithstanding any other provision of this article, a covered claim shall not include any claim filed with the guaranty fund after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer, nor shall any default judgment or stipulated judgment against the insolvent insurer, or against the insured of an insolvent insurer, be binding against the association.
(b) Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties, defenses and obligations of the insolvent insurer as if the insurer had not become insolvent, including, but not limited to, the obligation to actively defend and protect the interests of the insured, to comply with the provisions of article eleven, chapter thirty-three of this code, and, in litigation, upon demand of the plaintiff to settle within statutory limits to settle such claims with the consent of the insured or be held liable for any verdict in excess of the demand, notwithstanding the statutory limits.
(c) Allocate claims paid and expenses incurred among the two accounts separately, and assess member insurers separately for each account amounts necessary to pay the obligations of the association under subdivision (a) of this subsection subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, the cost of examinations under section thirteen of this article and other expenses authorized by this article. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the preceding calendar year on the kinds of insurance in the account bears to the net direct written premiums of all member insurers for the preceding calendar year on the kinds of insurance in the account. Each member insurer shall be notified of the assessment not later than thirty days before it is due. No member insurer may be assessed in any one year on any account an amount greater than two percent of that member insurer's net direct written premiums for the preceding calendar year on the kinds of insurance in the account. If the maximum assessment, together with the other assets of the 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 shall be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. The association may exempt or 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 the 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. Each member insurer may set off against any assessment, authorized payments made on covered claims and expenses incurred in the payment of such claims by the member insurer if they are chargeable to the account for which the assessment is made.
(d) Investigate claims brought against the association and adjust, compromise, settle and pay covered claims to the extent of the association's obligation and deny all other claims and 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 directs under subsection (2), section ten of this article.
(f) Handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the commissioner, but such designation may be declined by a member insurer.
(g) Reimburse each servicing facility for obligations of the association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the association and shall pay the other expenses of the association authorized by this article.
(2) The association may:
(a) Employ or retain such persons as are necessary to handle claims and perform other duties of the association.
(b) Borrow funds necessary to effect the purposes of this article in accord with the plan of operation.
(c) Sue or be sued.
(d) Negotiate and become a party to such contracts as are necessary to carry out the purpose of this article.
(e) Perform such other acts as are necessary or proper to effectuate the purpose of this article.
(f) Refund to the member insurers in proportion to the contribution of each member insurer to an 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 the association in any account exceed the liabilities of that account as estimated by the board of directors for the coming year.
§33-26-12. Nonduplication of recovery.

(1) Any person having a claim against a solvent insurer under any provision in an insurance policy for which the person is a named insured, other than a policy of an insolvent insurer, which is also a covered claim, shall be required to exhaust first his or her right under such solvent insurer's policy. Any amount payable on a covered claim under this article shall be reduced by the amount of any recovery under such solvent insurer's policy.
(2) Any person having a claim which 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 location of the property. Any recovery under this article shall be reduced by the amount of the recovery from any other insurance guaranty association or its equivalent.
§33-26-14. Examination of association; financial report.

The association shall be subject to examination and regulation by the commissioner. The board of directors shall submit, not later than March thirtieth of each year, a financial report for the preceding calendar year, in a form approved by the commissioner. The report shall include the amount of reserves, known claims and activities of the association in the preceding calender year. Member insurers shall be provided a copy of the financial report upon written request.




NOTE: The several purposes of this bill are the following: (1) It clarifies that "covered claim" under the article means an unpaid claim under an insurance policy issued by an insolvent insurer; (2) it provides that "covered claim" does not include any amount for which an insured has obtained replacement coverage; (3) it provides that the West Virginia Guaranty Association ascends to the rights and obligations that otherwise would have been held by an insolvent insurer before the insurer became insolvent, including rights and obligations to defend the insured, and to be held liable for an excess verdict in the event the plaintiff demands settlement within coverage limits; and (4) it provides that the report required by article twenty-six, section fourteen to be submitted to the insurance commissioner includes the amount of reserves and known claims for which the association is responsible and that a copy of the report be made available to member insurers upon request.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.