AS Title 21, Chapter 80: Alaska Insurance Guaranty Association Act

Chapter 80. Alaska Insurance Guaranty Association Act. Sec. 21.80.010. Purposes. The purposes of this chapter are to provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and, to the extent provided in this chapter, to minimize financial loss to claimants or policyholders because of the insolvency of an insurer, and to provide an association to assess the cost of this protection among insurers. Sec. 21.80.020. Applicability. This chapter applies to all kinds of direct insurance written by an admitted insurer, except that this chapter does not apply to the following: (1) life, annuity, health, or disability insurance; (2) residual value, mortgage guaranty, or financial guaranty of other forms of insurance offering protection against investment risks; (3) bonding obligations, including fidelity or surety bonds; (4) insurance protecting the interests of a creditor arising out of a creditor-debtor transaction, including credit insurance, vendors' single interest insurance, or collateral protection insurance; (5) insurance of warranties or service contracts, including insurance providing for (A) the repair, replacement, or service of goods or property; (B) indemnification for repair, replacement, or service of goods or property; or (C) reimbursement for liability incurred by a person issuing a warranty or service contract; (6) title insurance; (7) a transaction or combination of transactions between a person, including the person's affiliates, and an insurer, including the insurer's affiliates, that involves the transfer of investment or credit risk unaccompanied by the transfer of insurance risk; (8) insurance provided by or guaranteed by a government; (9) a risk retention group formed under 15 U.S.C. 3901 — 3906 (Liability Risk Retention Act); (10) insurance written on a retroactive basis to cover known losses for which a claim has already been made and the claim is known to the insurer at the time the insurance is bound. Sec. 21.80.030. Construction. This chapter shall be construed to effect the purposes under AS 21.80.010 , which constitute an aid and guide to interpretation. Sec. 21.80.040. Creation of association. (a) There is created a nonprofit incorporated legal entity to be known as the Alaska Insurance Guaranty Association. All insurers defined as member insurers in AS 21.80.180 shall be and remain members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under a plan of operation established and approved under AS 21.80.070 and shall exercise its powers through a board of governors established under AS 21.80.050 . For purposes of administration and assessment, the association shall be divided into three separate accounts: the workers' compensation insurance account; the automobile insurance account; and the account for all other insurance to which this chapter applies. (b) A member insurer ceases to be a member on the day following the termination or expiration of the member insurer's license to transact the kinds of insurance to which this chapter applies; however, the insurer remains liable as a member insurer for any and all obligations, including obligations for assessments levied before the termination or expiration of the member insurer's license and assessments levied after the termination or expiration with respect to an insurer that became an insolvent insurer before the termination or expiration of the insurer's license. Sec. 21.80.050. Board of governors. (a) The board of governors of the association consists of not fewer than five nor more than nine members as specified in and serving terms as established in the plan of operation. The director may appoint two individuals as members of the board to represent the public. The insurer members of the board shall be selected by member insurers, subject to the approval of the director. A vacancy in a board membership held by an insurer member shall be filled for the remaining period of the term by a majority vote of the remaining board members, subject to the approval of the director. If an insurer member is not selected to fill a vacancy on the board of governors within 90 days of the vacancy, the director may appoint a member for the remaining period of the term. A vacancy in a board membership held by a representative of the public may be filled by the director. A board member who represents the public may not be an officer, director, or employee of an insurer and may not be engaged in the business of insurance. (b) In approving member insurer selections to the board, the director shall consider among other things whether all member insurers are fairly represented. (c) Members of the board may be reimbursed from the assets of the association for expenses incurred by them as members of the board of governors. Sec. 21.80.060. Powers and duties of the association. (a) The association (1) is obligated to pay covered claims existing before the order of liquidation and arising within 30 days after the order of liquidation, or before the policy expiration date if less than 30 days after the order of liquidation, or before the insured replaces the policy or causes its cancellation if the insured does so within 30 days after the order of liquidation, but this obligation includes only that amount of each covered claim that is less than $500,000, except that a covered claim for return of unearned premium may not exceed $10,000 for each policy, and except that the association shall pay the full amount of any covered claim arising out of a workers' compensation policy; the association is not obligated (A) to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises; or (B) to pay a claim filed with the association after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer; (2) is considered the insurer to the extent of its obligation on the covered claims and to that extent has all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent; (3) shall allocate claims paid and expenses incurred among the three accounts separately, and assess member insurers separately for each account amounts necessary to pay the obligation of the association under (1) of this subsection subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, and other expenses authorized by this chapter; under this paragraph, (A) the assessments of each member insurer must initially be based on a uniform percentage, as determined by the association, of the net direct written premiums of each member insurer for the last year for which annual statements have been filed on the kinds of insurance in the account; this initial assessment shall be adjusted by applying the same uniform percentage as initially used to each member insurer's net direct written premiums for the calendar year following the year in which the initial assessment was issued; any difference between the initial assessment amount and the adjusted assessment amount allocated to a member insurer shall be levied against or credited back to the member insurer, as appropriate, by the association; the association shall calculate and issue all appropriate levies and credits as soon as practical after all member insurers have filed their annual statements for the calendar year following the year in which the initial assessment was issued; (B) on an annual basis, the association shall determine if funding is required for any of the three accounts; based on this determination, the association shall, during November of each year, issue initial assessments as may be necessary to cover the projected reasonable costs of claims and expenses to administer the association for the following year; under this subparagraph, (i) the association shall use the services of an independent actuary to assist the association to evaluate and make the projection; and (ii) an initial assessment may be made at any other time if the association determines funding is necessary, except that a member insurer may not be assessed initial assessments on any account in an amount greater than two percent of the member insurer's net direct written premiums for the applicable calendar year; (C) the association may pay claims in any order that it determines reasonable, including the payment of claims as they are received from claimants or in groups or categories of claims; however, if the maximum of all assessments made under this section, 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; (D) the association may defer, in whole or in part, an assessment of any member insurer if the assessment would endanger the ability of the member insurer to fulfill the insurer's contractual obligations or 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; however, during the period of deferment, the member insurer may not pay dividends to shareholders or policyholders; a deferred assessment may only be paid when the payment does not reduce capital or surplus below minimums required by law; a member insurer who pays a larger assessment as a result of a deferment given to another member insurer shall receive a refund when the deferment ends or, at the election of the member insurer, receive a credit against future assessments; (E) each member insurer may set off against an assessment authorized payments made on covered claims and expenses incurred in the payment of these claims by the member insurer if they are chargeable to the account for which the assessment is made; (4) shall investigate claims brought against the association, 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 settlements, releases, and judgments may be properly contested; (5) may, subject to AS 21.96.100 , appoint, substitute, or direct legal counsel retained under an insurance policy for the defense of a covered claim; (6) shall handle claims through its employees or through one or more insurers or other persons designated as servicing facilities; a servicing facility shall operate and maintain its principal office in this state unless the use of a servicing facility located outside of the state would result in operating cost savings of at least 10 percent and would not result in material delay in claim payments; designation of a servicing facility is subject to the approval of the director, but designation may be declined by a member insurer; (7) shall 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 chapter. (b) The association may (1) employ or retain those persons necessary to handle claims and perform other duties of the association; (2) borrow funds necessary to effect the purposes of this chapter in accord with the plan of operation and secure guarantees from the Alaska Industrial Development and Export Authority for association loans that are necessary to make the association financially able to meet cash flow needs; (3) sue or be sued; (4) negotiate and become a party to those contracts that are necessary to carry out the purposes of this chapter; (5) perform all other acts necessary or proper to carry out the purposes of this chapter; (6) retain amounts excess of claims, expenses, credits, and other liabilities in any account to be applied to reduce future assessments in that account, except that, if, in any year, the association determines that significant funds in excess of projected claims, expenses, credits, and other liabilities exist in an account, the association shall return amounts to policyholders, through procedures established by the association, whereby the association reimburses member insurers for providing uniform credits against rates and premiums charged for all policies applicable to the account issued during the next calendar year. Sec. 21.80.070. Plan of operation. (a) The association shall submit to the director a plan of operation and any amendments necessary or suitable to assure the fair, reasonable, and equitable administration of the association. The plan of operation and amendments become effective upon approval in writing by the director. If the association fails to submit suitable amendments to the plan, the director shall, after notice and hearing, adopt reasonable regulations necessary or advisable to effectuate the provisions of this chapter. These regulations shall continue in force until modified by the director or superseded by a plan submitted by the association and approved by the director. (b) All member insurers shall comply with the plan of operation. (c) The plan of operation must (1) establish the procedures whereby all the powers and duties of the association under AS 21.80.060 will be performed; (2) establish procedures for handling assets of the association, including procedures for handling assets received from the estate of an insolvent insurer; (3) establish the amount and method of reimbursing members of the board of governors under AS 21.80.050 ; (4) establish procedures by which claims may be filed with the association and establish acceptable forms of proof of covered claims; notice of claims to the receiver or liquidator of the insolvent insurer is considered notice to the association or its agent, and a list of these claims shall be periodically submitted to the association or similar organization in another state by the receiver or liquidator; (5) establish regular places and times for meetings of the board of governors; (6) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of governors; (7) provide that any member insurer aggrieved by a final action or decision of the association may appeal to the director within 30 days after the action or decision; (8) establish the procedures whereby selections of the board of governors will be submitted to the director; (9) provide for a member insurer serving on the board of governors to appoint an individual to represent the member insurer on the board, including appointment of an alternate or substitute representative for the appointed person; (10) contain additional provisions necessary or proper for the execution of the powers and duties of the association; (11) establish procedures whereby the association shall, concurrent with making any initial assessments for the following year under AS 21.80.060 (a)(3)(B), determine uniform surcharge percentages that may be applied by member insurers to all policies related to an account; (12) establish procedures whereby the association shall determine surcharge percentages related to an account so that adjusted assessments match, as closely as possible, the amounts that would be collected by member insurers, in the aggregate, if the surcharge percentages were applied to all new and renewal policies issued by member insurers during the applicable 12-month period; any estimated or actual difference between the aggregate assessment and maximum allowable surcharge amounts related to an account shall be taken into account by the association in determining future surcharge percentages. (d) [Repealed, § 12 ch 52 SLA 1990.] Sec. 21.80.080. Duties and powers of the director. (a) The director shall (1) notify the association of the existence of an insolvent insurer no later than three days after the director receives notice of the determination of the insolvency; (2) upon request of the board of governors, provide the association with a statement of the net direct written premiums of each member insurer. (b) The director may (1) suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer that fails to pay an assessment when due or fails to comply with the plan of operation; as an alternative, the director may levy a fine on any member insurer that fails to pay an assessment when due; this fine may not exceed five percent of the unpaid assessment per month or portion of a month, except that a fine may not be less than $250 a month; (2) revoke the designation of any servicing facility upon a finding that claims are being handled unsatisfactorily; (3) upon a finding by the superior court that the board of governors has failed to comply with a requirement of this chapter or the plan of operation, assume the powers of the board of governors under AS 21.80.060 . Sec. 21.80.090. Effect of paid claims. (a) A person recovering under this chapter is considered to have assigned the person's rights under the policy to the association to the extent of the recovery from the association. Every insured or claimant seeking the protection of this chapter shall cooperate with the association to the same extent as the person would have been required to cooperate with the insolvent insurer. The association does not have a cause of action against the insured of the insolvent insurer for any sums the association has paid out except a cause of action the insolvent insurer would have had if the sums had been paid by the insolvent insurer and except as provided under (b) of this section. In the case of an insolvent insurer operating on a plan with assessment liability, payments of claims of the association do not operate to reduce the liability of insured to the receiver, liquidator, or statutory successor for unpaid assessments. (b) The association or a similar organization in another state shall be recognized as a claimant in the liquidation of an insolvent insurer for amounts paid by the association or the similar organization on covered claims as determined by this chapter or a similar law of another state and shall receive distributions as provided under AS 21.78.260 or a similar law of another state. The receiver, liquidator, or statutory successor of an insolvent insurer shall be bound by settlements of covered claims by the association or a similar organization in another state to the extent the settlement satisfies obligations of the association. The receiver may not be bound in any way by a settlement of covered claims to the extent there remains a claim that exceeds the claims limit imposed under AS 21.80.060 . The court having jurisdiction shall grant these claims priority against the assets of the insolvent insurer equal to the priority that the claimant would have been entitled to in the absence of this chapter. The expenses of the association or similar organization in handling claims shall be accorded the same priority as the liquidator's expenses. (c) The association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association which shall preserve the rights of the association against the assets of the insolvent insurer. Sec. 21.80.095. Prohibited claims. An insurer, reinsurer, insurance pool, or underwriting association may not assert a claim against a person insured under a policy issued by an insolvent insurer except for an amount not covered by the claims limit established under AS 21.80.060 . Sec. 21.80.100. Nonduplication of recovery. (a) A person having a claim against an insurer, whether or not the insurer is a member insurer, under a provision in an insurance policy other than a policy of an insolvent insurer that is also a covered claim is required to exhaust first the person's right under the policy. An amount payable on a covered claim under this chapter shall be reduced by the amount of recovery under the insurance policy. (b) A 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, the person shall seek recovery first from the association of the location of the property, and if it is a workers' compensation claim, the person shall seek recovery first from the association of the residence of the claimant. A recovery under this chapter shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. Sec. 21.80.110. Prevention of insolvencies. The board of governors may (1) upon a majority vote, make recommendations to the director regarding matters generally related to improving or enhancing regulation for insurer solvency; or (2) at the conclusion of an insurer insolvency in which the association was obligated to pay covered claims, prepare a report on the history and causes of the insolvency, based on the information available to the association, and submit this report to the director. Sec. 21.80.120. Examination of the association. The association is subject to examination and regulation by the director. The board of governors shall submit, not later than June 30 of each year, a certified financial report for the preceding calendar year in a form approved by the director. Sec. 21.80.130. Tax exemption. The association is exempt from payment of all fees and all taxes levied by the state or any of its subdivisions except taxes levied on real or personal property. Sec. 21.80.140. Recognition of assessments in surcharge rates. The rates and premiums charged for insurance policies to which this chapter applies may include surcharge rates sufficient to offset the adjusted assessments made under this chapter and paid to the association by member insurers, and these surcharge rates may not be considered excessive because they contain an amount reasonably calculated to offset the full amounted of adjusted assessments paid by member insurers. The association shall notify the director of each surcharge percentage determined by the association, and this surcharge percentage shall be the maximum surcharge rate that may be applied by member insurers related to the assessment, except that a member insurer may make application to the director to apply a higher surcharge rate. The amount charged on a policy shall be shown separate from the premium for coverage on the policy. The surcharge rate is not considered a premium and is not subject to the premium tax imposed under AS 21.09.210 . Sec. 21.80.150. Immunity. There is no liability on the part of and a cause of action of any nature may not arise against a member insurer, the association or its agents or employees, the board of governors or a person serving as an alternate or substitute representative of a governor, or the director or representatives of the director for action taken or a failure to act by them in the performance of their powers and duties under this chapter. However, immunity from liability under this section does not apply to wilful or wanton misconduct. Sec. 21.80.160. Stay of proceedings and reopening of default judgments. All proceedings in which the insolvent insurer is a party or is obligated to defend a party in a court in this state shall, subject to waiver by the board of governors of the association in specific cases involving covered claims, be stayed for 90 days or additional time as ordered by a court from the date the insolvency is determined or an ancillary proceeding is instituted in this state, whichever is later, to permit proper defense by the association for all pending causes of action as to any covered claims arising from a judgment under a decision, verdict, or finding based on the default of the insolvent insurer or its failure to defend an insured. The association, either on its own behalf or on behalf of the insured, may apply to have this judgment, order, decision, verdict, or finding set aside by the same court or administrator that made the judgment, order, decision, verdict, or finding and shall be permitted to defend against the claim on the merits. Sec. 21.80.170. Termination and distribution of funds. [Repealed, § 12 ch 52 SLA 1990.] Sec. 21.80.180. Definitions. In this chapter, unless the context requires otherwise, (1) “account” means any one of the three accounts created by AS 21.80.040 (a); (2) “affiliate of an insolvent insurer” means a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an insolvent insurer on December 31 of the year immediately preceding the date the insurer becomes an insolvent insurer; (3) “association” means the Alaska Insurance Guaranty Association; (4) “claimant” means an insured making a first party claim or a person making a liability claim; “claimant” does not include a person who is an affiliate of an insolvent insurer; (5) “control” has the meaning given in AS 21.22.200 ; (6) “covered claim” means an unpaid claim, including one of unearned premiums, that arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy issued by an insurer to which this chapter applies if the insurer becomes an insolvent insurer and (A) the claimant or insured is a resident of this state at the time of the insured event, or (B) the claim is a first party claim for damage to property that is permanently located in this state; “covered claim” does not include an amount awarded for punitive or exemplary damages, an amount sought as a return of premium under a retroactive rating plan, or an amount due a reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries or otherwise; (7) “insolvent insurer” means an insurer (A) authorized to transact insurance in this state either at the time the policy was issued or when the insured event occurred, except an assessable reciprocal insurer formed by and insuring only municipalities or nonprofit public utilities, a reciprocal insurer formed under AS 21.75 to provide marine insurance, and a joint insurance arrangement formed under AS 21.76 , either at the time the policy was issued or when the insured event occurred, and (B) against which a court of competent jurisdiction in the insurer's state of domicile has made a final order of liquidation with a finding of insolvency; (8) “member insurer” means a person, except an assessable reciprocal insurer formed by and insuring only municipalities or nonprofit public utilities, a reciprocal insurer formed under AS 21.75 to provide marine insurance, and a joint insurance arrangement formed under AS 21.76 , who (A) writes insurance to which this chapter applies under AS 21.80.020 , including the exchange of reciprocal or interinsurance contracts; and (B) is authorized to transact insurance in the state; (9) “net direct written premiums” means direct gross premiums written in this state on insurance policies to which this chapter applies, less return premiums thereon and dividends paid or credited to policyholders on direct business; “net direct written premiums” does not include premiums on contracts between insurers or reinsurers; (10) “resident” means, for a person other than an individual, the state in which the person's principal place of business is located at the time of the insured event. Sec. 21.80.190. Short title. This chapter may be known and cited as the Alaska Insurance Guaranty Association Act.