Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact insurance in this state to become members. Existing law requires CIGA to collect premium payments from members and to discharge covered claims, as defined, of an insolvent insurer. CIGA is required to allocate its claim payments and costs based on categories of insurance, including, but not limited to, workers compensation claims and homeowners claims.

This bill would provide that the laws described above governing CIGA do not require a final determination of a claim in an insolvent insurers liquidation proceeding before a covered claim may be submitted to CIGA. The bill would provide that these laws also do not require a claim to first be determined and approved by the liquidator before CIGA pays and discharges a covered claim. The bill would also provide that if the association provides written denial of a nonworkers compensation claim, the person asserting the claim against the association has one year to bring an action challenging the denial, including an action for declaratory relief. This bill would also require, if the written denial is based on a failure to exhaust other insurance available to pay the claim, a claim to be reasserted against the association within 6 months after all other insurance has been exhausted.

Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact insurance in this state to become members. Existing law requires CIGA to collect premium payments from members and to discharge covered claims, as defined, of an insolvent insurer. CIGA is required to allocate its claim payments and costs based on categories of insurance, including, but not limited to, workers compensation claims and homeowners claims.

This bill would provide that the laws described above governing CIGA do not require a final determination of a claim in an insolvent insurers liquidation proceeding before a covered claim may be submitted to CIGA. The bill would provide that these laws also do not require a claim to first be determined and approved by the liquidator before CIGA pays and discharges a covered claim. The bill would also provide that if the association provides written denial of a nonworkers compensation claim, the person asserting the claim against the association has one year to bring an action challenging the denial, including an action for declaratory relief. This bill would also require, if the written denial is based on a failure to exhaust other insurance available to pay the claim, a claim to be reasserted against the association within 6 months after all other insurance has been exhausted.

Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact insurance in this state to become members. Existing law requires CIGA to collect premium payments from members and to discharge covered claims, as defined, of an insolvent insurer. CIGA is required to allocate its claim payments and costs based on categories of insurance, including, but not limited to, workers compensation claims and homeowners claims.

This bill would provide that the laws described above governing CIGA do not require a final determination of a claim in an insolvent insurers liquidation proceeding before a covered claim may be submitted to CIGA. The bill would provide that these laws also do not require a claim to first be determined and approved by the liquidator before CIGA pays and discharges a covered claim. The bill would also provide that if the association provides written denial of a nonworkers compensation claim, the person asserting the claim against the association has one year to bring an action challenging the denial, including an action for declaratory relief. This bill would also require, if the written denial is based on a failure to exhaust other insurance available to pay the claim, a claim to be reasserted against the association within 6 months after all other insurance has been exhausted.

Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact insurance in this state to become members. Existing law requires CIGA to collect premium payments from members and to discharge covered claims, as defined, of an insolvent insurer. CIGA is required to allocate its claim payments and costs based on categories of insurance, including, but not limited to, workers compensation claims and homeownersclaims homeowners claims.

This bill would provide that the laws described above governing CIGA do not require the a final adjudication determination of claims a claim in an insolvent insurers liquidation proceedings proceeding before a covered claim may be submitted to CIGA. The bill would provide that these laws also do not require a claim to first be adjudicated determined and approved by the liquidator before CIGA pays and discharges a covered claim. The bill would also provide that if the association provides written denial of a claim, the person asserting the claim against the association has one year to bring an action against the association challenging the denial, including an action for declaratory relief. This bill would also provide that require, if the written denial is based on a failure to exhaust other insurance available to pay the claim, a claim must to be reasserted against the association within 6 months after all other insurance has been exhausted.

Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact insurance in this state to become members. Existing law requires CIGA to collect premium payments from members and to discharge covered claims, as defined, of an insolvent insurer. CIGA is required to allocate its claim payments and costs based on categories of insurance, including, but not limited to, workers compensation claims and homeownersclaims.

This bill would provide that the laws described above governing CIGA do not require the final adjudication of claims in an insolvent insurers liquidation proceedings before a covered claim may be submitted to CIGA. The bill would provide that these laws also do not require a claim to first be adjudicated and approved by the liquidator before CIGA pays and discharges a covered claim. The bill would also provide that if the association provides written denial of a claim, the person asserting the claim has one year to bring an action against the association challenging the denial. This bill would also provide that if the written denial is based on a failure to exhaust other insurance available to pay the claim, a claim must be reasserted against the association within 6 months after all other insurance has been exhausted.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 822

Author:(Cooley)

As Amended Ver:June 1, 2015

Majority vote

Original Committee Reference: INS.

SUMMARY: Provides that the right to file a judicial action challenging a denial of a claim by the California Insurance Guarantee Association (CIGA) is triggered by a written denial of the claim by CIGA, and does not have to wait until the liquidator of the insolvent insurer has finally wrapped up and closed the insolvency.

The Senate amendments exclude workers' compensation claims from the rule established by this bill.

EXISTING LAW:

1. Establishes CIGA to pay covered claims to those who are owed an insurance payment from an insolvent property-casualty insurer.

2. Establishes a system administered by the Insurance Commissioner, or the similar official in other states with respect to insurers admitted in California but domiciled in other states, to handle the insolvency (bankruptcy) of insurers.

FISCAL EFFECT: None

COMMENTS: The purpose of CIGA is to pay covered claims right away to anyone entitled to payment from an insurer that has become insolvent while insolvency proceedings go forward on a separate track. The insolvency proceedings can go on for years, even decades, depending on the complexity of the insurer's business. A recent case implied that a claim against CIGA is not "ripe" until the insolvency proceeding has concluded, which would defeat the fundamental purpose of CIGA. This bill clarifies that this is not the rule. Since workers' compensation claims have not suffered from this potential defect, those claims were excluded by Senate amendments to ensure that current law affecting workers' compensation claims is not inadvertently changed.

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086 FN: 0001001

 THIRD READING  

Bill No: AB 822

Author: Cooley (D)

Amended: 6/1/15 in Senate

Vote: 21

SENATE INSURANCE COMMITTEE: 9-0, 6/10/15

AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Liu, Mitchell, Wieckowski

ASSEMBLY FLOOR: 79-0, 4/16/15 - See last page for vote

SUBJECT: Insurance: California Insurance Guarantee Association: insolvency

SOURCE: California Insurance Guarantee Association

DIGEST: This bill provides that the laws governing the California Insurance Guarantee Association (CIGA) do not require a final determination of a claim in an insolvent insurer’s liquidation proceeding before a covered claim may be submitted to CIGA, and establishes a one-year statute of limitations for filing non-workers’ compensation civil claims against CIGA or, if the written denial of the non-workers’ compensation claim is based on a failure to exhaust other insurance available to pay the claim, six months after all other insurance has been exhausted, as specified.

ANALYSIS:

Existing law:

1. Establishes CIGA to pay covered claims of insolvent member insurers, as specified.

2. Requires each insurer admitted to transact insurance in this state in three specified classes of insurance, including workers’ compensation, auto and homeowners, and all other property casualty insurance, to participate in CIGA as a condition of doing business.

3. Defines covered claims, and expressly limits CIGA’s authority to make payments to only those claims that are specifically enumerated.

4. Provides that a covered claim does not include a claim to the extent it is covered by any other insurance.

5. Requires California policyholders to pay an assessment on insurance policies (up to 2%, subject to some qualifications) in order to fund CIGA’s claims-paying obligations.
   
   

This bill:

1. Provides that the laws governing CIGA do not require a final determination of a claim in an insolvent insurer’s liquidation proceeding before a covered claim may be submitted to CIGA.

2. Provides that if a claim is presented to CIGA and all requirements for processing a covered claim are satisfied, CIGA shall process the claim for payment.

3. Provides that if CIGA provides a written denial of a non-workers’ compensation claim, then the person asserting the claim has one year to bring an action challenging the denial, including an action for declaratory relief.

4. Provides that if the written denial of the non-workers’ compensation claim is based on a failure to exhaust other insurance available to pay the claim, a claim shall be reasserted against CIGA within six months after all other insurance has been exhausted.
   
   

Background

CIGA was created by legislation in 1969 as an association of insurers that makes payments to policyholders of property/casualty, workers’ compensation and “miscellaneous” insurers when the member insurance company becomes insolvent and is unable to do so. It is a statutory entity that depends on the establishing legislation for its existence and for a definition of the scope of its powers, duties and protections. CIGA is funded by premium surcharges upon applicable lines of insurance, and those surcharges are limited by statute to a maximum of 2%.

The purpose of CIGA is to pay covered claims of member insurance companies that have become insolvent. CIGA’s total liability for any single claim is $500,000, other than claims for workers’ compensation, which are not limited. CIGA does not have to pay a claim “to the extent that it is covered by any other insurance of a class covered by this article and available to the claimant or insured.” This requires a factual determination on a number of issues.

In Snyder v. CIGA (229 Cal.App.4th, 177 Cal.Rptr.3d 853), the Court of Appeal was considering a complex and longstanding litigation that impacted asbestos claims being paid from a trust established to fund long-term liabilities of companies that used asbestos after the insolvency of the workers’ compensation insurer. Normally the statute of limitations accrues on a claim for coverage to CIGA as soon as CIGA rejects the claim, establishing a clear beginning of the limitations period. The question in Snyder was more difficult: when does the limitations period begin to run for submitting a claim for coverage?

The Court in Snyder observed that no statute or regulation specifies the point at which a claim must be submitted to CIGA. In the absence of a clear legislative mandate, the Court discussed the general law that no cause of action arises until all of the elements necessary to it were present. The Court went on to create its own determination of what must be present for a claimant to have a mature claim against CIGA, stating “An insured’s right to recover from CIGA does not arise and cannot be determined until it is known what recovery the insured will obtain in the insolvency proceedings.” The Court went on to say that “Nonetheless, because the claim is not ripe for determination until the actual recovery in the insolvency proceedings is known, a fair argument can be made that the cause of action against CIGA does not accrue until that uncertainty has been resolved.”

The implication of the Court’s ruling is that no claim against CIGA becomes ripe until the underlying insolvent insurer’s estate is finally resolved, which in many cases is years if not decades after claims have arisen or the insurer was seized as insolvent by its home state regulator.

The Court’s decision in Snyder raises important policy issues for the handling of claims by CIGA. The court decision could result in the unintended consequence of forcing claimants to wait until an insolvent estate is finally resolved—possibly many years--before submitting a claim to CIGA.

By way of example, in the Snyder case the proof of claim was filed with the liquidator in June of 2004 and no determination on that claim was made by the liquidator until 2011, almost seven years later. Claimants who want to seek covered claim benefits from CIGA should not have to wait that many years for their claims against CIGA to mature.

AB 822 will not affect the normal filing of claims for workers’ compensation benefits or change the workers’ compensation process, but will apply to civil claims filed against the organization. AB 822 will not affect the parties to the Snyder case, but will only apply prospectively to new cases.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/11/15)

California Insurance Guarantee Association (source)

Association of California Insurance Companies

Personal Insurance Federation of California

OPPOSITION: (Verified 6/11/15)

None received

ARGUMENTS IN SUPPORT: CIGA, sponsor of this bill, believes that rather than have to litigate with various claimants over when a cause of action accrues, it would be much more prudent to clearly remedy the Court’s observation that no statute or regulation specifies when the statute of limitations period for civil actions against CIGA should begin to run. Establishing a clear standard will also eliminate the concern that many claimants never file a proof of claim in the liquidation proceeding and never get a determination of what recovery they will obtain in that proceeding as well as the delays inherent in waiting for the liquidator to make determinations on what recovery a claimant will receive as a result of filing a proof of claim.

According to the Association of California Insurance Companies, AB 822 will establish a clear statute of limitations for those filing claims against CIGA. The bill is in response to a recent Appellate Court decision that noted California had no statutes or regulations to address this issue, and went on to establish its own view of what the statute of limitations was, creating significant confusion as to the ability of CIGA to pay claims on a timely basis. The Personal Insurance Federation of California supports AB 822 because it takes a reasonable approach that will provide certainty and eliminate the need for expensive and time-consuming litigation simply to determine when the statute of limitations had begun.

ASSEMBLY FLOOR: 79-0, 4/16/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O’Donnell, Olsen, Patterson, Perea, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Quirk

Prepared by: Erin Ryan / INS. / (916) 651-4110

6/16/15 16:22:29

**** END ****

SENATE COMMITTEE ON INSURANCE

Senator Richard Roth, Chair

2015 - 2016 Regular

Bill No: AB 822 Hearing Date: June 10, 2015

Subject: Insurance: California Insurance Guarantee Association: insolvency.

SUMMARY

Provides that the laws governing the California Insurance Guarantee Association (CIGA) do not require a final determination of a claim in an insolvent insurer’s liquidation proceeding before a covered claim may be submitted to CIGA, and establishes a one year statute of limitations for filing non-workers’ compensation civil claims against CIGA or, if the written denial of the non-workers’ compensation claim is based on a failure to exhaust other insurance available to pay the claim, six months after all other insurance has been exhausted, as specified.

DIGEST

Existing law

1. Establishes CIGA to pay “covered claims” of insolvent member insurers, as specified. (§1063 et. seq.)

2. Requires each insurer admitted to transact insurance in this state in three specified classes of insurance, including workers’ compensation, auto and homeowners, and all other property casualty insurance, to participate in CIGA as a condition of doing business.

3. Defines “covered claims,” and expressly limits CIGA’s authority to make payments to only those claims that are specifically enumerated.

4. Specifically provides that a “covered claim” does not include a claim to the extent it is covered by any other insurance. (§1063.1(c)(9))

5. Provides that California policyholders pay an assessment on insurance policies (up to 2%, subject to some qualifications) in order to fund CIGA's claims-paying obligations
   
   

This bill

1. Provides that the laws governing CIGA do not require a final determination of a claim in an insolvent insurer’s liquidation proceeding before a covered claim may be submitted to CIGA.

2. Provides that if a claim is presented to CIGA and all requirements for processing a covered claim are satisfied, CIGA shall process the claim for payment.

3. Provides that if CIGA provides a written denial of a non-workers’ compensation claim, then the person asserting the claim has one year to bring an action challenging the denial, including an action for declaratory relief.

4. Provides that if the written denial of the non-workers’ compensation claim is based on a failure to exhaust other insurance available to pay the claim, a claim shall be reasserted against CIGA within six months after all other insurance has been exhausted.
   
   

COMMENTS

1. Purpose of the bill To establish a clear standard with regard to when a cause of action accrues within the workers’ compensation system for CIGA civil claims in response to a recent Court of Appeal decision in Snyder v. CIGA (229 Cal.App.4^th, 177 Cal.Rptr.3d 853) which noted that there is no statute or regulation specifying when a claim must be submitted to CIGA..
   
   

2. Background CIGA was created by legislation in 1969 as an association of insurers that makes payments to policyholders of property/casualty, workers’ compensation and “miscellaneous” insurers when the member insurance company becomes insolvent and is unable to do so. It is a statutory entity that depends on the establishing legislation for its existence and for a definition of the scope of its powers, duties and protections. CIGA is funded by premium surcharges upon applicable lines of insurance, and those surcharges are limited by statute to a maximum of 2%.

The purpose of CIGA is to pay “covered claims” of member insurance companies that have become insolvent. CIGA’s total liability for any single claim is $500,000, other than claims for workers’ compensation, which are not limited. CIGA does not have to pay a claim “to the extent that it is covered by any other insurance of a class covered by this article and available to the claimant or insured.” (Insurance Code §1063.1(c)(9)(A)) This requires a factual determination on a number of issues.

In the Snyder case, the Court was considering a complex and longstanding litigation that impacted asbestos claims being paid from a trust established to fund long-term liabilities of companies that used asbestos after the insolvency of the workers’ compensation insurer. Normally the statute of limitations accrues on a claim for coverage to CIGA as soon as CIGA rejects the claim, establishing a clear beginning of the limitations period. The question in Snyder was more difficult: when does the limitations period begin to run for submitting a claim for coverage?

The Court of Appeal in Snyder v. CIGA observed that no statute or regulation specifies the point at which a claim must be submitted to CIGA. In the absence of a clear legislative mandate, the Court discussed the general law that no cause of action arises until all of the elements necessary to it were present. The Court went on to create its own determination of what must be present for a claimant to have a mature claim against CIGA, stating “An insured’s right to recover from CIGA does not arise and cannot be determined until it is known what recovery the insured will obtain in the insolvency proceedings.” The Court went on to say that “Nonetheless, because the claim is not ripe for determination until the actual recovery in the insolvency proceedings is known, a fair argument can be made that the cause of action against CIGA does not accrue until that uncertainty has been resolved.”

The implication of the Court's ruling is that no claim against CIGA becomes ripe until the underlying insolvent insurer's estate is finally resolved – which in many cases is years if not decades after claims have arisen or the insurer was seized as insolvent by its home state regulator. The Court stated that “because the claim is not ripe for determination until the actual recovery in the insolvency proceedings is known, a fair argument can be made that the cause of action against CIGA does not accrue until that uncertainty has been resolved.”

The Court’s decision in Snyder raises important policy issues for the handling of claims by CIGA. As noted above, the purpose of CIGA is to pay “covered claims” of member insurance companies as soon as possible. The court decision could result in the unintended consequence of forcing claimants to wait until an insolvent estate is finally resolved—possibly many years--before submitting a claim to CIGA.

By way of example, in the Snyder case the proof of claim was filed with the liquidator in June of 2004 and no determination on that claim was made by the liquidator until 2011, almost seven years later. Claimants who want to seek “covered claim” benefits from CIGA should not have to wait that many years for their claims against CIGA to mature.

AB 822 will not affect the normal filing of claims for workers’ compensation benefits or change the workers’ compensation process, but will apply to civil claims filed against the organization.

AB 822 will not affect the parties to the Snyder case, but will only apply prospectively to new cases.

3. Support CIGA, sponsor of this bill, believes that rather than have to litigate with various claimants over when a cause of action accrues, it would be much more prudent to clearly remedy the Court’s observation that no statute or regulation specifies when the statute of limitations period for civil actions against CIGA should begin to run. Establishing a clear standard will also eliminate the concern that many claimants never file a proof of claim in the liquidation proceeding and never get a determination of what recovery they will obtain in that proceeding as well as the delays inherent in waiting for the liquidator to make determinations on what recovery a claimant will receive as a result of filing a proof of claim.

According to the Association of California insurance Companies, AB 822 will establish a clear statute of limitations for those filing claims against CIGA. The bill is in response to a recent Appellate Court decision that noted California had no statutes or regulations to address this issue, and went on to establish its own view of what the statute of limitations was, creating significant confusion as to the ability of CIGA to pay claims on a timely basis. The Personal Insurance Federation of California supports AB 822 because it takes a reasonable approach that will provide certainty and eliminate the need for expensive and time-consuming litigation simply to determine when the statute of limitations had begun.

4. Opposition None received.
   
   

POSITIONS

Support

California Insurance Guarantee Association (sponsor)

Association of California Insurance Companies

Personal Insurance Federation of California

Oppose

None received

-- END --

Date of Hearing: April 8, 2015

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 822

Author:(Cooley) – As Amended Ver:April 6, 2015

SUBJECT: California Insurance Guarantee Association: Statute of Limitations

SUMMARY: Establishes a statutory 1-year statute of limitations for filing a claim against the California Insurance Guarantee Association (CIGA). Specifically, this bill:

1. Declares that nothing in the law governing CIGA requires that there be a final adjudication of claims in the proceedings associated with the insolvent insurer's estate before a "covered claim" may be submitted to CIGA.

2. Declares that nothing in the law governing CIGA requires a claim to first be adjudicated and approved by a liquidator of the estate of an insolvent insurer before CIGA pays and discharges a covered claim.

3. Specifies that once CIGA has issued a written denial of a claim, the person asserting the claim has one year within which to bring an action against CIGA challenging the denial.

4. Provides that, if the denial is based on the failure to exhaust "other insurance" then the claim must be reasserted within 6 months after all other insurance has been exhausted.

EXISTING LAW:

1. Provides for the establishment of CIGA by all insurers admitted (licensed) to transact property-casualty insurance in California.

2. Specifies how CIGA is to be organized and governed, subject to the supervision of the Insurance Commissioner (commissioner).

3. Provides that if an insurer admitted to transact property-casualty insurance in California becomes insolvent, those California claimants whose claim(s) would have been paid by that insolvent insurer may file a claim against CIGA.

4. Provides that CIGA may only pay "covered claims", which are described in statute in some detail, and which cover most, but not all, theoretical claims that the insolvent insurer might have had to pay.

5. Specifies that CIGA shall not pay a "covered claim" if there is "other insurance" that is also obligated to pay that same claim.

6. Provides that California policyholders pay an assessment on insurance policies (up to 2%, subject to some qualifications) in order to fund CIGA's claims-paying obligations.

7. Provides that if an insurer that is a California domestic insurer becomes insolvent, the commissioner is in charge of handling the insolvency, in concert with other states where the California domestic insurer is admitted to transact insurance.

8. Provides that if an insurer that is domiciled in another state, but admitted to transact insurance in California, becomes insolvent, the insurance regulator in the insurer's home state is primarily in charge of handling the insolvency of that insurer.

FISCAL EFFECT: Undetermined.

COMMENTS:

1. Purpose. According to the author, this bill is intended to address what are probably unintended consequences of a recent Court of Appeal decision. In Snyder v. CIGA (229 Cal.App.4^th 1196, 177 Cal.Rptr.3d 853), the Court was considering a complex and long-standing litigation that impacted asbestos claims being paid from a trust established to fund long-term liabilities of companies that used asbestos (arguably) before its toxicity was understood. In that case, the Court was forced to deal with several issues, and in the context of ruling that the claim against CIGA was not barred by a statute of limitations, it stated “A more difficult question is when the limitations period begins to run for submitting a claim for coverage. Neither the statute nor any regulation specifies the point at which a claim must be submitted to CIGA. California differs from other states in this regard." Unfortunately, and independent of the long-term nature of the Snyder litigation, the implication of the Court's ruling is that no claim against CIGA becomes ripe until the underlying insolvent insurer's estate is finally resolved – which in many cases is years if not decades after claims have arisen or the insurer was seized as insolvent by its home state regulator. AB 822 is designed to establish a clear and reasonable bright-line rule for when a claimant must file a claim against CIGA.

2. Background. AB 822 addresses the interaction of two related but distinct consumer protection laws. One of the primary insurance consumer protection roles of the commissioner is ensuring the solvency of insurers. When an insurer fails, consumers are at risk of not being paid at all. As a result, there are two parallel and complex regulatory interests: 1) how are insolvent insurers handled, and 2) how are people who are owed money from those insurers protected.
   
   An insolvent insurer does not typically have "zero" money. What makes it insolvent is that it does not have enough money to pay its short-term and long-term obligations. California law, and the highly similar laws of the other states and United States jurisdictions, have an elaborate procedure for ensuring that 1) the maximum amount of money is preserved for paying claims (e.g., assets are liquidated rationally, not in a "fire-sale"; reinsurance is collected; receivables are pursued), and 2) the highest priority claimants have first claim on that money (e.g., insurance policyholder claims have a higher priority than general creditors).
   
   The guarantee association structure, on the other hand, is intended to make sure that people or companies who have claims against the insolvent insurer, to the extent possible and authorized by statute, get paid in the short term, as opposed to many years in the future when all of the complexities of the insolvent insurer's estate can be finally worked out. In this regard, CIGA pays claims up front, and then asserts its rights to get repaid at some future date depending on how many pennies on the dollar are left in the insolvent insurer's estate.

3. Snyder. The Court in Snyder faced a complex and long-standing litigation, and the exposures associated with asbestos are also long-term. Thus, ensuring the reasonable rights of all parties to that litigation was a difficult task. However, in judging the equities of the parties in that case, the Court used language that is troublesome for typical parties involved in typical insurer insolvencies. Specifically, the Court stated that “An insured’s right to recover from CIGA does not arise and cannot be determined until it is known what recovery the insured will obtain in the insolvency proceedings.” The Court went on to state that “Nonetheless, because the claim is not ripe for determination until the actual recovery in the insolvency proceedings is known, a fair argument can be made that the cause of action against CIGA does not accrue until that uncertainty has been resolved.”
   
   The policy issues posed by the Snyder language are 1) whether or not it is reasonable to make a claimant wait for years until an insolvent insurer's estate is finally resolved before a claim can be filed against CIGA, and 2) whether or not it is fair to California policyholders (who fund CIGA) that claimants may hold back filing claims for years/decades and then file after no one involved in the matter is available to provide testimony or evidence as to whether the claim is valid or not. At least with respect to the first issue, making claimants wait to be paid is contrary to the main purpose of CIGA – which is to get "covered claims" paid expeditiously despite the insurer being insolvent.
   
   AB 822 answers these questions by stating that the final determination of the insolvent insurer's estate is not the relevant time frame, and that once CIGA issues a written denial of a claim, a claimant has 1-year to challenge that denial in court.

4. Law of the case. Nothing in AB 822 will impact the parties to the Snyder case. The decision that those claimants are not prevented from filing their challenge against CIGA by a statute of limitations is a final determination on that issue. AB 822 would apply only prospectively to new cases.

REGISTERED SUPPORT / OPPOSITION:

Support

Association of California Insurance Companies

Personal Insurance Federation of California

California Insurance Guarantee Association

Opposition

None received

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086