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H.B. 233

             1     

PROPERTY AND CASUALTY GUARANTY

             2     
ASSOCIATION ACT

             3     
2001 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Gerry A. Adair

             6      This act modifies the Utah Property and Casualty Guaranty Association Act. The act
             7      establishes a minimum amount for all claims. The act revises definitions, specifically the
             8      definition of a "covered claim." The act addresses net worth test for first-party claims. The
             9      act eliminates per diem but allows expenses for members of the board of directors. The act
             10      addresses the powers and duties of the board of directors. The act addresses termination of
             11      obligations on covered claims. The act allows payment of refunds directly to the State Tax
             12      Commission. The act grants exclusive jurisdiction over claims against the association to the
             13      Utah courts. The act eliminates classes of assessments. The act addresses the plan of
             14      operation of the association. The act clarifies that liability of the association commences with
             15      an order of liquidation. The act addresses the powers and duties of the commissioner. The
             16      act changes the date for submission of the annual report by the association. The act
             17      addresses stay of proceedings and makes technical changes.
             18      This act affects sections of Utah Code Annotated 1953 as follows:
             19      AMENDS:
             20          31A-28-202, as last amended by Chapter 97, Laws of Utah 1988
             21          31A-28-203, as last amended by Chapter 211, Laws of Utah 1991
             22          31A-28-205, as last amended by Chapter 97, Laws of Utah 1988
             23          31A-28-206, as last amended by Chapter 10, Laws of Utah 1997
             24          31A-28-207, as last amended by Chapter 261, Laws of Utah 1989
             25          31A-28-208, as last amended by Chapter 211, Laws of Utah 1991
             26          31A-28-209, as last amended by Chapter 204, Laws of Utah 1986
             27          31A-28-210, as enacted by Chapter 242, Laws of Utah 1985


             28          31A-28-213, as last amended by Chapter 204, Laws of Utah 1986
             29          31A-28-214, as enacted by Chapter 242, Laws of Utah 1985
             30          31A-28-218, as last amended by Chapter 95, Laws of Utah 1987
             31          31A-28-220, as last amended by Chapter 204, Laws of Utah 1986
             32      ENACTS:
             33          31A-28-222, Utah Code Annotated 1953
             34      REPEALS:
             35          31A-28-201, as repealed and reenacted by Chapter 97, Laws of Utah 1988
             36          31A-28-216, as enacted by Chapter 242, Laws of Utah 1985
             37          31A-28-219, as last amended by Chapter 204, Laws of Utah 1986
             38          31A-28-221, as enacted by Chapter 95, Laws of Utah 1987
             39      Be it enacted by the Legislature of the state of Utah:
             40          Section 1. Section 31A-28-202 is amended to read:
             41           31A-28-202. Scope.
             42          This part applies to protect resident policyowners and insureds under all types of direct
             43      insurance, except [life, title, surety, disability, credit (including mortgage guarantee), ocean marine
             44      insurance, insurance of warranties or service contracts, financial guarantee, and all insurance
             45      coverages guaranteed by the United States Government.]:
             46          (1) life insurance;
             47          (2) annuity;
             48          (3) health insurance;
             49          (4) disability insurance;
             50          (5) mortgage guaranty insurance;
             51          (6) financial guaranty, or other forms of insurance offering protection against investment
             52      risks;
             53          (7) fidelity or surety bonds, or any other bonding obligation;
             54          (8) credit insurance;
             55          (9) vendor's single interest insurance;
             56          (10) collateral protection insurance, or any similar insurance protecting the interests of a
             57      creditor in a creditor-debtor transaction;
             58          (11) mechanical breakdown insurance, as defined in Section 31A-6a-101 ;


             59          (12) insurance of a warranty or service contract as defined in Section 31A-6a-101 ;
             60          (13) title insurance;
             61          (14) ocean marine insurance;
             62          (15) any transaction between a person and an insurer, or an affiliate of a person or insurer,
             63      that involves the transfer of investment or credit risk unaccompanied by transfer of insurance risk;
             64      or
             65          (16) any insurance provided by or guaranteed by government.
             66          Section 2. Section 31A-28-203 is amended to read:
             67           31A-28-203. Definitions.
             68          As used in this part:
             69          (1) "Affiliate" is as defined in Section 31A-1-301 .
             70          (2) (a) "Claimant" means:
             71          (i) an insured making a first-party claim; or
             72          (ii) a person instituting a liability claim.
             73          (b) A person who is an affiliate of the insolvent insurer may not be a claimant.
             74          [(1)] (3) (a) "Covered claim" means an unpaid claim, [excluding] including an unpaid
             75      claim under a personal lines policy for unearned premiums submitted by a claimant, [that] if:
             76          (i) the claim arises out of [and] the coverage;
             77          (ii) the claim is within the coverage [and];
             78          (iii) the claim is not in excess of the applicable limits of an insurance policy to which this
             79      part applies[, where];
             80          (iv) the insurer who issued the policy becomes an insolvent insurer[,]; and [where]
             81          (v) (A) the claimant or insured is a resident of this state at the time of the insured event;
             82      or [the property from which the claim arises is permanently located in this state.]
             83          (B) the claim is a first-party claim for damage to property that is permanently located in
             84      this state.
             85          (b) "Covered claim" does not include:
             86          (i) any amount awarded as punitive or exemplary damages or any amount due any
             87      reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries or
             88      otherwise, nor does it include any supplementary payment obligation, including adjustment fees
             89      and expenses, attorneys' fees and expenses, court costs, interest, and bond premiums, prior to the


             90      appointment of a liquidator[.];
             91          (ii) any amount sought as a return of premium under a retrospective rating plan;
             92          (iii) any first-party claim by an insured if:
             93          (A) the insured's net worth exceeds $25,000,000 on December 31 of the year preceding
             94      the date the insurer becomes an insolvent insurer; and
             95          (B) the insured's net worth includes the aggregate net worth of the insured and all of its
             96      subsidiaries as calculated on a consolidated basis; or
             97          (iv) any first-party claims by an insured that is an affiliate of the insolvent insurer.
             98          (4) "Insolvent insurer" means a member insurer that is placed under an order of liquidation
             99      by a court of competent jurisdiction with a finding of insolvency.
             100          (5) "Member insurer" means any person who:
             101          (a) writes any kind of insurance to which this part applies under Section 31A-28-202 ,
             102      including the exchange of reciprocal or inter-insurance contracts; and
             103          (b) is licensed to transact insurance in this state.
             104          [(2)] (6) (a) "Net direct written premiums" means direct gross premiums written in this
             105      state on insurance policies that this part applies to, less return premiums and dividends paid or
             106      credited to policyholders on the direct business.
             107          (b) "Net direct written premiums" does not include premiums on contracts between
             108      insurers or reinsurers.
             109          [(3) Other definitions applicable to this part are given under Section 31A-28-105 .]
             110          (7) "Personal lines policy" means an insurance policy issued to an individual that:
             111          (a) insures a motor vehicle used for personal purposes and not used in trade or business;
             112      or
             113          (b) insures a residential dwelling.
             114          (8) "Residence" means, for entities other than a natural person, the state where the
             115      principal place of business of a claimant, insured, or policyholder is located at the time of the
             116      insured event.
             117          Section 3. Section 31A-28-205 is amended to read:
             118           31A-28-205. Creation of the association.
             119          (1) (a) The Utah Property and Casualty Insurance Guaranty Association shall continue as
             120      a nonprofit legal entity.


             121          (b) All member insurers of the association are, and remain, members of the association as
             122      a condition of their authority to transact insurance business in this state.
             123          (c) The association shall:
             124          (i) perform its functions under the plan of operation established and approved under
             125      Section 31A-28-209 ; and [shall]
             126          (ii) exercise its powers through a board of directors established under Section 31A-28-206 .
             127          (d) For the purposes of administration and assessment, the association shall maintain:
             128          (i) a workers' compensation insurance account[,];
             129          (ii) an automobile insurance account[,]; and
             130          (iii) a miscellaneous account for all other insurance to which this part applies.
             131          (2) (a) An insurer shall cease to be a member insurer on the day following the termination
             132      or expiration of the insurer's license to transact the kinds of insurance to which this part applies.
             133          (b) Notwithstanding Subsection (2)(a), the insurer shall remain liable as a member insurer
             134      for all obligations, including assessments levied:
             135          (i) before the termination or expiration of the insurer's license; and
             136          (ii) after the termination or expiration of the insurer's license but that relate to an insurer
             137      that became an insolvent insurer before the termination or expiration of the insurer's license.
             138          [(2)] (3) Meetings or records of the association shall be open to the public upon a majority
             139      vote of the board of directors of the association.
             140          [(3)] (4) The association is not an agency of the state.
             141          Section 4. Section 31A-28-206 is amended to read:
             142           31A-28-206. Board of directors.
             143          (1) (a) The board of directors of the association consists of not less than five nor more than
             144      nine members, serving terms of four years each.
             145          (b) The members of the board shall be selected by member insurers, subject to the
             146      commissioner's approval. When a vacancy occurs in the membership for any reason, the
             147      replacement shall be elected for the unexpired term by a majority vote of the remaining board
             148      members, subject to the commissioner's approval.
             149          (c) In approving selections or in appointing members to the board, the commissioner shall
             150      consider whether all member insurers are fairly represented.
             151          (d) Notwithstanding [the requirements of] Subsection (1)(a), the commissioner shall, at


             152      the time of election or reelection, adjust the length of terms to ensure that the terms of board
             153      members are staggered so that approximately half of the board is selected every two years.
             154          [(2) (a) Members shall receive no compensation or benefits for their services, but may
             155      receive per diem and expenses incurred in the performance of the member's official duties at the
             156      rates established by the Division of Finance under Sections 63A-3-106 and 63A-3-107 from the
             157      assets of the association.]
             158          (2) A member of the board of directors may be reimbursed from the assets of the
             159      association for expenses the member incurs as a member of the board of directors.
             160          [(b) Members may decline to receive per diem and expenses for their service.]
             161          Section 5. Section 31A-28-207 is amended to read:
             162           31A-28-207. Powers and duties of the association.
             163          (1) (a) The association is obligated on the amount of the covered claims:
             164          (i) existing prior to the [determination of insolvency] order of liquidation; and [rising]
             165          (ii) arising:
             166          (A) within 30 days after the [determination of insolvency,] order of liquidation; or
             167          (B) (I) before the policy expiration date if it is less than 30 days after the [determination,]
             168      order of liquidation; or
             169          (II) before the insured replaces the policy or causes its cancellation, if [he] the insured does
             170      so within 30 days of the [determination] order of liquidation.
             171          (b) The obligation under Subsection (1)(a) includes only that amount of each covered
             172      claim that is [in excess of $100 and is] less than $300,000. [However, the]
             173          (c) A claim under a personal lines policy for unearned premiums shall include only those
             174      claims that exceed $100 in amount, subject to a maximum of $10,000 per policy.
             175          (d) The association shall pay the full amount of any covered claim arising out of a
             176      [workmen's] workers' compensation policy. [In no event is the] The association is not obligated
             177      to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer
             178      under the policy from which the claim arises.
             179          (e) Any obligation of the association to defend an insured on a covered claim shall cease:
             180          (i) upon payment by the association, as part of a settlement releasing the insured; or
             181          (ii) on a judgment, of the lesser of:
             182          (A) the association's covered claim obligation limit; or


             183          (B) the applicable policy limit.
             184          [(b)] (f) The association:
             185          (i) is considered as the insurer only to the extent of its obligation on the covered claims,
             186      [and to that extent,] subject to the limitations provided in this part;
             187          (ii) has all the rights, duties, and obligations of the insolvent insurer as if the insurer had
             188      not yet become insolvent, including the right to pursue and retain salvage and subrogation
             189      recoverable on paid covered claim obligations; and
             190          (iii) may not be considered the insolvent insurer for any purpose relating to whether the
             191      association is subject to personal jurisdiction in the courts of any state.
             192          (g) (i) Notwithstanding any other provisions of this part, except in the case of a claim for
             193      benefits under workers' compensation coverage, any obligation of the association to or on behalf
             194      of a particular insured and its affiliates on covered claims shall cease when:
             195          (A) a total amount of $10,000,000 has been paid to or on behalf of the insured and its
             196      affiliates on covered claims by the association or a similar association; and
             197          (B) all payments on covered claims arise under one or more policies of a single insolvent
             198      insurer.
             199          (ii) The association may establish a plan to allocate the amounts payable by the association
             200      in a manner the association considers equitable if the association determines that:
             201          (A) there is more than one claimant asserting a covered claim against:
             202          (I) the association;
             203          (II) a similar association; or
             204          (III) a property or casualty insurance security fund in another state; and
             205          (B) all claims arise under the policy or policies of a single insolvent insurer.
             206          [(c)] (h) The association shall allocate claims paid and expenses incurred among the
             207      [three] accounts established under Section 31A-28-205 separately, and assess member insurers
             208      separately for each account amounts necessary to pay:
             209          (i) the obligations of the association under Subsection (1)(a), as limited by Subsections
             210      (1)(e) through (g), subsequent to [an insolvency] the liquidation of an insolvent insurer;
             211          (ii) the expenses of handling covered claims subsequent to [an insolvency] the liquidation
             212      of an insolvent insurer;
             213          (iii) the cost of examinations under Section 31A-28-214 ; and


             214          (iv) other expenses authorized by this part.
             215          [(d)] (i) (i) The association shall:
             216          (A) investigate claims brought against the association; and
             217          (B) adjust, compromise, settle, and pay covered claims to the extent of the association's
             218      obligation and deny all other claims [and may review settlements, releases, and judgments that the
             219      insolvent insurer or its insureds were parties to in determining if the settlements, releases, or
             220      judgments may be properly contested].
             221          [(e) The association shall notify the persons the commissioner requests under Subsection
             222      31A-28-210 (2) (a).]
             223          (ii) The association is not bound by a settlement, release, compromise, waiver, or judgment
             224      executed or entered into by the insolvent insurer:
             225          (A) less than 12 months before the entry of an order of liquidation; or
             226          (B) more than 12 months before the entry of an order of liquidation if the settlement,
             227      release, compromise, waiver, or judgment is:
             228          (I) based on a claim that is not a covered claim; or
             229          (II) the result of fraud, collusion, default, or failure to defend.
             230          (iii) The association may assert all defenses available including defenses applicable to
             231      determining and enforcing the association's statutory rights and obligations to a claim.
             232          (iv) The association may appoint and direct legal counsel retained under a liability
             233      insurance policy for the defense of a covered claim.
             234          [(f)] (j) (i) The association shall handle claims through:
             235          (A) its employees [or through];
             236          (B) one or more insurers; or
             237          (C) other persons designated as servicing facilities.
             238          (ii) Designation of a servicing facility is subject to the approval of the commissioner, but
             239      this designation may be declined by a member insurer.
             240          [(g)] (k) The association shall:
             241          (i) reimburse each servicing facility for:
             242          (A) obligations of the association paid by the facility; and [for]
             243          (B) expenses incurred by the facility while handling claims on behalf of the association;
             244      and [shall]


             245          (ii) pay the other expenses of the association as authorized by this title.
             246          (2) The association may:
             247          (a) employ or retain the persons, including private legal counsel, necessary to handle
             248      claims and perform other duties of the association;
             249          (b) borrow funds necessary to implement the purposes of this part in accord with the plan
             250      of operation;
             251          (c) sue or be sued;
             252          (d) negotiate and become a party to the contracts necessary to carry out the purpose of this
             253      part;
             254          (e) perform any other acts necessary or proper to accomplish the purposes of this chapter;
             255      or
             256          (f) refund to the member insurers, in proportion to the contribution of each member insurer
             257      to that account, the amount that the assets of the account exceed the liabilities, if, at the end of any
             258      calendar year, the board of directors finds that:
             259          (i) the assets of the association in any account exceed the liabilities of that account as
             260      estimated by the board of directors for the coming year[.]; and
             261          (ii) the excess assets are not needed for other purposes of this part.
             262          (3) For a refund due to a member insurer for an assessment that has been offset against
             263      premium taxes, the association may pay the amount of the refund directly to the State Tax
             264      Commission.
             265          (4) The courts of the state shall have exclusive jurisdiction over all actions brought against
             266      the association that relate to or arise out of this part.
             267          [(3)] (5) (a) Any person recovering under this part is considered to have assigned [his] that
             268      person's rights under the policy to the association to the extent of [his] that person's recovery from
             269      the association.
             270          (b) Every insured or claimant seeking the protection of this chapter shall cooperate with
             271      the association to the same extent the person would have been required to cooperate with the
             272      insolvent insurer. [The]
             273          (c) Except as provided in Subsection (5)(e), the association has no cause of action against
             274      the insured of the insolvent insurer for any sums the association has paid out except those causes
             275      of action the insolvent insurer would have had if the sums had been paid by the insolvent insurer.


             276          (d) When an insolvent insurer operates on a plan with assessment liability, payments of
             277      claims of the association do not reduce the liability for unpaid assessments of the insurer to:
             278          (i) the receiver[,];
             279          (ii) liquidator[,]; or
             280          (iii) statutory successor [for unpaid assessments].
             281          [(b)] (e) The association [shall have the right to] may recover from the following persons
             282      the amount of any "covered claim" paid on behalf of [such] that person pursuant to [the act] this
             283      part:
             284          (i) any insured whose:
             285          (A) net worth on December 31 of the year next preceding the date the insurer becomes
             286      insolvent, exceeds [$50,000,000,] $25,000,000; and [whose]
             287          (B) liability obligations to other persons are satisfied in whole or in part by payments made
             288      under this [act] part; and
             289          (ii) any person:
             290          (A) who is an affiliate of the insolvent insurer; and
             291          (B) whose liability obligations to other persons are satisfied in whole or in part by
             292      payments made under this [action] part.
             293          [(c)] (f) (i) The receiver, liquidator, or statutory successor of an insolvent insurer is bound
             294      by [settlements]:
             295          (A) a determination of a covered claim eligibility under this part; and
             296          (B) a settlement of a covered [claims] claim by the association or a similar organization
             297      in another state.
             298          (ii) The court having jurisdiction shall grant [these] settled claims a priority equal to that
             299      which the claimant would have been entitled to in the absence of this [chapter] part, against the
             300      assets of the insolvent insurer. [The expenses, including legal fees, of the association or similar
             301      organization in handling claims are given the same priority as the liquidator's expenses.]
             302          (g) The association or any similar organization in another state shall:
             303          (i) be recognized as a claimant in the liquidation of an insolvent insurer for any amounts
             304      paid on a covered claim obligation as determined under this part or a similar law in another state;
             305      and
             306          (ii) receive dividends or distributions at the priority set forth in Section 31A-27-335 .


             307          [(d)] (h) (i) The association shall periodically file with the receiver or liquidator of the
             308      insolvent insurer[,]:
             309          (A) statements of the covered claims paid by the association; and
             310          (B) estimates of anticipated claims on the association. [This]
             311          (ii) The filing under this Subsection (5)(h) preserves the rights of the association for claims
             312      against the assets of the insolvent insurer.
             313          [(e)] (i) The association need not pay any claim filed after the final date under Sections
             314      31A-27-315 and 31A-27-328 , or similar statutes of other states, for filing the same type of claim
             315      with the liquidator of the insolvent insurer.
             316          Section 6. Section 31A-28-208 is amended to read:
             317           31A-28-208. Assessments.
             318          (1) [In order to] (a) To provide the funds necessary to carry out the powers and duties of
             319      the association, the board of directors shall assess the member insurers, separately for each account
             320      established under Section 31A-28-205, at the time and in the amount the board finds necessary.
             321      [Assessments are]
             322          (b) An assessment under this section:
             323          (i) is due not less than 30 days after written notice to the member insurers; and [accrue]
             324          (ii) accrues interest to the extent unpaid after the due date at the greater of:
             325          (A) 10% per annum[,]; or
             326          (B) the then legal rate of interest provided in Section 15-1-1 [, whichever is greater, to the
             327      extent unpaid after the due date].
             328          (c) The association shall allocate claims and incurred expenses among the accounts.
             329          [(2) There are two classes of assessments as follows:]
             330          [(a) Class A assessments are made to meet administrative costs and other general
             331      expenses. Class A assessments may be made whether or not they are related to a particular
             332      impaired or insolvent insurer.]
             333          [(b) Class B assessments] (2) An assessment for each account [are] is to be made in the
             334      amount necessary to carry out the powers and duties of the association under Section [ 31A-28-108 ]
             335      31A-28-207 for an [impaired or] insolvent [member] insurer.
             336          [(3) The amount of any Class A assessment is determined by the board. The assessment
             337      may not exceed $150 per member insurer in any one calendar year.]


             338          [(4) Class B assessments] (3) An assessment against a member [insurers] insurer for each
             339      account [are] is in the proportion that the direct written premiums of the member insurer for the
             340      preceding calendar year on the kinds of insurance in the account bears to the net direct written
             341      premiums of all member insurers for the preceding calendar year on all kinds of insurance in the
             342      account.
             343          [(5) No] (4) A member insurer may not be assessed in any year on any account for an
             344      amount greater than 2% of that member insurer's net direct written premiums for the preceding
             345      calendar year on the kinds of insurance in the account.
             346          [(6)] (5) If the maximum assessment, together with the other assets of the association in
             347      any account, do not provide in any one year in any account an amount sufficient to make all
             348      necessary payments from that account, the funds available shall be prorated and the unpaid portion
             349      shall be paid as soon as funds become available.
             350          [(7)] (6) The association may exempt or defer, in whole or in part, the assessment of any
             351      member insurer, if the assessment would cause the member insurer's financial statement to reflect
             352      amounts of capital or surplus less than the minimum amounts required for a certificate of authority
             353      by any jurisdiction in which the member insurer is authorized to transact insurance.
             354          [(8)] (7) Each member insurer may set off against any assessment authorized payments
             355      made on covered claims and expenses incurred in the payment of the claims by the member
             356      insurer, if they are chargeable to the account for which the assessment is made.
             357          Section 7. Section 31A-28-209 is amended to read:
             358           31A-28-209. Plan of operation.
             359          (1) (a) The association shall submit to the commissioner a plan of operation and any
             360      amendments necessary or suitable to assure the fair, reasonable, and equitable administration of
             361      the association.
             362          (b) The plan of operation and amendments described in Subsection (1)(a) are effective
             363      upon approval in writing by the commissioner.
             364          (c) Any amendments made under this section after July 1, 1986, shall be made within 180
             365      days of the changed circumstance.
             366          (2) The plan of operation shall continue in force until:
             367          (a) modified by the commissioner; or
             368          (b) superseded by a plan:


             369          (i) submitted by the association; and
             370          (ii) approved by the commissioner.
             371          (3) All member insurers shall comply with the plan of operation.
             372          (4) The plan of operation shall, in addition to requirements enumerated elsewhere in this
             373      [chapter] part:
             374          (a) establish procedures for handling the assets of the association;
             375          (b) establish the amount and method of reimbursing members of the board of directors
             376      under Section 31A-28-206 ;
             377          (c) establish regular places and times for meetings of the board of directors;
             378          (d) establish procedures for records to be kept of all financial transactions of the
             379      association, [its] the association's agents, and the board of directors;
             380          (e) establish the procedures on how selections for the board of directors shall be made and
             381      submitted to the commissioner;
             382          (f) establish a procedure for the disposition of dividends or distributions from the estate
             383      of the insolvent insurer;
             384          [(f)] (g) establish any additional procedures for assessments under Section 31A-28-208 ;
             385      and
             386          [(g)] (h) contain any additional provisions [which] that are necessary or proper for the
             387      execution of the powers and duties of the association.
             388          (5) (a) The plan of operation may provide that any or all of the powers and duties of the
             389      association, except those under Sections 31A-28-207 and 31A-28-208 , are delegated to [a] one of
             390      the following that performs functions similar to the association:
             391          (i) a corporation[,];
             392          (ii) an association[,]; or [other]
             393          (iii) organization other than one described in Subsections (5)(a)(i) and (ii). [This]
             394          (b) A corporation, association, or organization described in Subsection (5)(a) shall:
             395          (i) be reimbursed for any payments made on behalf of the association; and [shall]
             396          (ii) be paid for its performance of any function of the association.
             397          (c) A delegation under this Subsection (5) takes effect only with the approval of [both]:
             398          (i) the board of directors; and
             399          (ii) the commissioner.


             400          Section 8. Section 31A-28-210 is amended to read:
             401           31A-28-210. Duties and powers of the commissioner.
             402          (1) In addition to the duties and powers enumerated elsewhere in this part, the
             403      commissioner shall:
             404          (a) notify the association of the existence of an insolvent insurer not later than three days
             405      after [he] the commissioner receives notice of the [determination of the insolvency;] order of
             406      liquidation; and
             407          (b) upon request of the board of directors, provide the association with a statement of the
             408      premiums in this state for each member insurer.
             409          [(2) (a) The commissioner may require that the association notify the insureds of the
             410      insolvent insurer and any other interested parties of the determination of insolvency and of their
             411      rights under this part. This notification shall be by mail at their last known address, where
             412      available, but if sufficient information for notification by mail is not available, notice by
             413      publication in a newspaper of general circulation is sufficient.]
             414          [(b)] (2) (a) The commissioner may suspend or revoke, after notice and hearing, the
             415      certificate of authority to transact insurance in this state of any member insurer that fails:
             416          (i) to pay an assessment when due; or [fails]
             417          (ii) to comply with the plan of operation or the rules adopted under this part.
             418          (b) (i) As an alternative to an action described in Subsection (2)(a), the commissioner may
             419      levy a fine on any member insurer that fails to pay an assessment when due. [This]
             420          (ii) The fine [shall] permitted under this Subsection (2)(b) may not:
             421          (A) exceed 5% of the unpaid assessment per month[, except that no fine may]; or
             422          (B) be less than $100 per month.
             423          (c) The commissioner may revoke the designation of any servicing facility if [he] the
             424      commissioner finds claims are being handled unsatisfactorily.
             425          (3) Any final action or order of the commissioner under this part is subject to judicial
             426      review in a court of competent jurisdiction.
             427          Section 9. Section 31A-28-213 is amended to read:
             428           31A-28-213. Miscellaneous provisions.
             429          (1) (a) Any person who has a claim against an insurer, whether or not the insurer is a
             430      member insurer, under any provision in an insurance policy, other than a policy of an insolvent


             431      insurer that is also a covered claim, is required to first exhaust [his] that person's right under [his]
             432      that person's policy.
             433          (b) Any amount payable on a covered claim under this part under an insurance policy is
             434      reduced by the amount of any recovery under [that] the insurance policy described in Subsection
             435      (1)(a).
             436          [(b) Any] (c) (i) Except as provided in Subsection (1)(c)(ii). a person having a claim that
             437      may be recovered under more than one insurance guaranty association or its equivalent shall first
             438      seek recovery from the association of the place of residence of the insured. [However, if this]
             439          (ii) If the person's claim is:
             440          (A) a first-party claim for damage to property with a permanent location, [he] the person
             441      shall seek recovery first from the association of the location of the property[,]; and [if this claim
             442      is a workmen's]
             443          (B) a workers' compensation claim, [he] the person shall seek recovery first from the
             444      association of the residence of the claimant.
             445          (iii) Any recovery under this part shall be reduced by the amount of recovery from any
             446      other insurance guaranty association or its equivalent.
             447          (2) [Nothing in this] This part [shall] may not be construed to reduce the liability for
             448      unpaid assessments of the insureds of an impaired or insolvent insurer operating under a plan with
             449      assessment liability.
             450          (3) (a) Records shall be kept of all negotiations and meetings in which the association or
             451      its representatives are involved to discuss the activities of the association in carrying out [its] the
             452      association's powers and duties under Section 31A-28-207 . Records of these negotiations or
             453      meetings shall be made public only:
             454          (i) upon the termination of a liquidation, rehabilitation, or conservation proceeding
             455      involving the [impaired or] insolvent insurer[, upon];
             456          (ii) the termination of the [impairment or] insolvency of the insurer[,]; or [upon]
             457          (iii) the order of a court of competent jurisdiction.
             458          (b) This Subsection (3) does not limit the duty of the association to render a report of its
             459      activities under Section 31A-28-214 .
             460          (4) For the purpose of carrying out its obligations under this part, the association is
             461      considered to be a creditor of the [impaired or] insolvent insurer, except to the extent of any


             462      amounts the association is entitled as subrogee under Section 31A-28-207 .
             463          (5) (a) [Prior to] Before the termination of any liquidation, rehabilitation, or conservation
             464      proceeding, the court may take into consideration the contributions of the respective parties,
             465      including:
             466          (i) the association[,];
             467          (ii) the shareholders[, and];
             468          (iii) the policyowners of the insolvent insurer[,]; and
             469          (iv) any other party with a bona fide interest, in making an equitable distribution of the
             470      ownership rights of the insolvent insurer.
             471          (b) In making [this] the determination described in Subsection (5)(a), [consideration] the
             472      court shall [be given to] consider the welfare of the policyholders of the continuing or successor
             473      insurer.
             474          [(b) No] (c) A distribution to stockholders, if any, of an [impaired or] insolvent insurer
             475      may not be made until the total amount of valid claims of the association with interest on those
             476      claims for funds expended in carrying out its powers and duties under Section 31A-28-207
             477      regarding this insurer have been fully recovered by the association.
             478          (6) A rehabilitator, liquidator, or conservator appointed under any section of this [code]
             479      part may recover on behalf of the insurer for excessive distributions paid to affiliates, pursuant to
             480      Section 31A-27-322 .
             481          Section 10. Section 31A-28-214 is amended to read:
             482           31A-28-214. Examination of the association -- Annual report.
             483          (1) The association is subject to examination and regulation by the commissioner.
             484          (2) The board of directors shall submit, [not] to the commission by no later than [March]
             485      April 30 of each year[,]:
             486          (a) a financial report for the preceding calendar year in a form approved by the
             487      commissioner [together with]; and
             488          (b) a report of [its] the association's activities during the preceding calendar year.
             489          Section 11. Section 31A-28-218 is amended to read:
             490           31A-28-218. Stay of proceedings -- Reopening default judgments.
             491          [All] (1) Except for specific cases involving covered claims that are subject to waiver by
             492      the association, all proceedings in which the insolvent insurer is a party or is obligated to defend


             493      a party in any court in this state shall be stayed [for a period not less than 60 days nor more than
             494      six months from the date the insolvency is determined] until the last day fixed by the court for the
             495      filing of claims to permit proper defense by the association of all pending causes of action. [As
             496      to]
             497          (2) For any covered [claims] claim arising from a judgment under any decision, order,
             498      verdict, or finding based on the default of the insolvent insurer or its failure to defend an insured,
             499      the association either on its own behalf or on behalf of the insured:
             500          (a) may apply to have the judgment[, order, decision, verdict, or findings] set aside by the
             501      [same] issuing court or administrator [that made the judgment, order, decision, verdict, or finding];
             502      and
             503          (b) shall be permitted to defend against the claim on the merits.
             504          Section 12. Section 31A-28-220 is amended to read:
             505           31A-28-220. Termination of association's operation.
             506          (1) The commissioner shall by order terminate the operation of the [Utah Property and
             507      Casualty Insurance Guaranty Fund] association for any kind of insurance covered under this part
             508      when [he] the commissioner finds that there is in effect a statutory or voluntary plan that:
             509          (a) is a permanent plan that is adequately funded or where adequate funding is provided;
             510      or
             511          (b) extends, or will extend to residents and policyholders, protection and benefits regarding
             512      insolvent insurers [which] that are not substantially less favorable and effective to residents and
             513      policyholders than the protection and benefits provided regarding the kinds of insurance covered
             514      under this part.
             515          (2) (a) The commissioner shall, by the order under Subsection (1), authorize
             516      discontinuance of future payments by insurers to the [Utah Property and Casualty Insurance
             517      Guaranty Fund] association regarding the kinds of insurance that are the subject of the order.
             518      [However, the]
             519          (b) Notwithstanding Subsection (2)(a), the assessments and payments shall continue, as
             520      necessary, to liquidate covered claims of insurers who are adjudged insolvent prior to the order and
             521      to pay the related expenses not covered by any other plan.
             522          (3) (a) If the operation of the [insurance guaranty] association is terminated under
             523      Subsection (1), the association shall, as soon as possible, distribute the balance of monies and


             524      assets remaining, after discharging the functions of the association as to prior insurer insolvencies
             525      [which] that were not covered by any other plan, together with related expenses, to the insurers that
             526      are then writing in this state policies of the kinds of insurance covered by this part, and that had
             527      made payments to the association. [This]
             528          (b) The reimbursement described in Subsection (3)(a) shall be:
             529          (i) pro rata[,]; and
             530          (ii) based upon the aggregate of the payments made by the respective insurers during the
             531      period of five years next preceding the date of the order.
             532          (c) For a reimbursement of an assessment that has been offset against premium taxes, the
             533      association may pay the amount of the reimbursement directly to the State Tax Commission.
             534          (d) Upon completion of the distribution regarding all of the kinds of insurance covered by
             535      this part, this part shall terminate.
             536          Section 13. Section 31A-28-222 is enacted to read:
             537          31A-28-222. Application of amendments.
             538          (1) The amendments in this act shall become effective on April 30, 2001 and apply to the
             539      association's obligations under policies of insolvent insurers as they exist on or after April 20,
             540      2001.
             541          (2) Notwithstanding Subsection (1), the amendments to Subsections 31A-28-203 (3) and
             542      31A-28-207 (1)(a) that add coverage for unearned premium claims shall apply only to insurers that
             543      become insolvent after the effective date.
             544          Section 14. Repealer.
             545          This act repeals:
             546          Section 31A-28-201, Purpose.
             547          Section 31A-28-216, Assessment inclusion in premiums.
             548          Section 31A-28-219, Prospective application.
             549          Section 31A-28-221, Insolvencies -- Recommendations and reports of board of
             550      directors.





Legislative Review Note
    as of 1-12-01 1:46 PM


A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel


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