Senate Bill No. 457
(By Senators Wooton, Walker, Snyder, Kessler and Sprouse)
[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
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.
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
(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
(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
(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
(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
(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
§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
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would