Bill 3391

                    Current Status

Bill Number:               3391
Ratification Number:       432
Act Number                 402
Introducing Body:          House
Subject:                   Definitions in the Property and Casualty
                           Insurance Guaranty Association Act

(A402, R432, H3391)

AN ACT TO AMEND SECTION 38-31-20, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO DEFINITIONS IN THE PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION ACT, SO AS TO REVISE THE DEFINITIONS; SECTION 38-31-30, RELATING TO APPLICATION OF THE ACT, SO AS TO PROVIDE FOR EXCEPTIONS; SECTION 38-31-40, RELATING TO THE CREATION OF AND MEMBERSHIP IN THE ASSOCIATION, SO AS TO PROVIDE FOR AN ADDITIONAL ACCOUNT; SECTION 38-31-60, RELATING TO THE POWERS AND DUTIES OF THE ASSOCIATION, SO AS TO PROVIDE FOR NEW DUTIES; SECTION 38-31-100, RELATING TO EXHAUSTING RIGHTS UNDER OTHER POLICIES AND CLAIMS RECOVERABLE FROM MORE THAN ONE ASSOCIATION, SO AS TO PROVIDE FOR A CLAIM UNDER A GOVERNMENTAL INSURANCE OR GUARANTY PROGRAM, CLAIM HELD BY AN INSURER, REINSURER, INSURANCE POOL, OR UNDERWRITING ASSOCIATION, AND CLAIM AGAINST AN INSURED UNDER A POLICY ISSUED BY AN INSOLVENT INSURER; SECTION 38-31-110, RELATING TO DETECTION AND PREVENTION OF INSURER INSOLVENCIES, SO AS TO REVISE THE DUTIES OF THE ASSOCIATION'S BOARD OF DIRECTORS AND THE INSURANCE COMMISSIONER; SECTION 38-31-150 RELATING TO IMMUNITY FROM LIABILITY FOR ACTION UNDER THIS ACT, SO AS TO PROVIDE FOR IMMUNITY FROM ANY OMISSION AND FOR THE ASSOCIATION'S LIABILITY; AND SECTION 38-31-160, RELATING TO PROCEEDINGS INVOLVING INSOLVENT INSURERS, SO AS TO PROVIDE FOR EXTENSION OF THE PERIOD OF TIME TO STAY THE PROCEEDINGS; AND TO REPEAL SECTION 38-31-180 RELATING TO CONSTRUCTION OF THE ACT.

Be it enacted by the General Assembly of the State of South Carolina:

Definitions revised

SECTION 1. Section 38-31-20 of the 1976 Code is amended to read:

"Section 38-31-20. As used in this chapter:

(1) 'Account' means any one of the four accounts created by Section 38-31-40.

(2) 'Affiliate' 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 thirty-first of the year next preceding the date the insurer becomes an insolvent insurer.

(3) 'Association' means the South Carolina Property and Casualty Insurance Guaranty Association created under Section 38-31-40.

(4) 'Claimant' means any insured making a first party claim or any person instituting a liability claim. However, no person who is an affiliate of the insolvent insurer may be a claimant.

(5) 'Control' means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result Or an official position with or corporate office held by the person. Control is presumed to exist if any person directly or indirectly owns, controls, holds with the power to vote, or holds proxies representing ten percent or more of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact.

(6) 'Covered claim' means an unpaid claim, including one of unearned premiums, which arises out of and is within the coverage and is subject to the applicable limits of an insurance policy to which this chapter applies issued by an insurer, if the insurer is an insolvent insurer and (a) the claimant or insured is a resident of this State at the time of the insured event, if for entities other than an individual, the residence of a claimant or insured in the state in which its principal place of business is located at the time of the insured event or (b) the property from which the claim arises is permanently located in this State. 'Covered claim' does not include any amount awarded as extra-contractual damages unless awarded against the Association; sought as a return of premium under any retrospective rating plan; or due any reinsurer, insurer, insurance pool, or underwriting association as subrogation recoveries or otherwise.

(7) 'Insolvent insurer' means an insurer (a) licensed to transact insurance in this State either at the time the policy was issued or when the insured event occurred and (b) determined to be insolvent by a court of competent jurisdiction in the insurer's state of domicile or of this State and which the Commissioner has found fails to meet its obligation to policyholders in this State.

(8) 'Member insurer' means any person who (a) writes any kind of insurance to which this chapter applies under Section 38-31-30 including the exchange of reciprocal or interinsurance contracts, and (b) is licensed to transact insurance in this 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 on the policies and dividends paid or credited to policyholders on the direct business. It does not include premiums on contracts between insurers or reinsurers."

Exceptions to the application of the chapter

SECTION 2. Section 38-31-30 of the 1976 Code is amended to read:

"Section 38-31-30. This chapter applies to all kinds of direct insurance but does not apply to the following:

(1) life, annuity, health, or accident insurance;

(2) mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment risks;

(3) fidelity or surety bonds, or any other bonding obligations;

(4) credit insurance, vendors' single interest insurance, collateral protection insurance, or any similar insurance protecting the interests of a creditor arising out of a creditor-debtor transaction; (5) insurance of warranties or service contracts;

(6) insurance written on a retroactive basis to cover known losses which have resulted from an event with respect to which a claim has already been made, and the claim is known to the insurer at the time the insurance is bound;

(7) title insurance;

(8) ocean marine insurance;

(9) any transaction or combination of transactions between a person, including affiliates of the person, and an insurer, including affiliates of the insurer, which does not effect a transfer of risk from the person, including affiliates of the person, to the insurer, including affiliates of the insurer, to the extent there is not a transfer of risk."

Additional association account

SECTION 3. Section 38-31-40 of the 1976 Code is amended to read:

"Section 38-31-40. There is created a nonprofit unincorporated legal entity to be known as the South Carolina Property and Casualty Insurance Guaranty Association. All insurers defined as member insurers in Section 38-31-20(8) are 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 Section 38-31-70 and shall exercise its powers through a board of directors established under Section 38-31-50. For purposes of administration and assessment, the Association is divided into four separate accounts:

(a) the workers' compensation insurance account;

(b) the automobile insurance account;

(c) the homeowners multiple peril and farmowners multiple peril insurance account;

(d) the account for all other insurance to which this chapter applies."

New duties of the association

SECTION 4. Section 38-31-60 of the 1976 Code is amended to read:

"Section 38-31-60. The Association:

(a) is obligated to the extent of claims existing before the determination of insolvency and claims arising up to the earliest of the following dates:

(i) thirty days after the determination of insolvency;

(ii) the policy expiration date; or

(iii) the date the insured replaces or cancels the policy.

This obligation includes only the amount each covered claim is in excess of two hundred fifty dollars and is less than three hundred thousand dollars. However, the Association shall pay the full amount of any covered workers' compensation claim. The Association has no obligation to pay a claimant's covered claim, except a workers' compensation claim, if:

(1) the insured had primary coverage at the time of the loss with a solvent insurer equal to or in excess of three hundred thousand dollars and applicable to the claimant's loss; or

(2) the insured's coverage is written subject to a self-insured retention equal to or in excess of three hundred thousand dollars. If the primary coverage and self-insured retention is less than three hundred thousand dollars, the Association's obligation to the claimant is reduced by the coverage or retention. The Guaranty Association shall pay the full amount of a covered workers' compensation claim to a claimant notwithstanding any self-insured retention but the Guaranty Association has the right to recover the amount of the self-insured retention from the employer. The Association is not obligated to pay a claimant an amount in excess of the obligation of the insolvent insurer under the policy or coverage from which the claim arises. A covered claim does not include any claim filed with the Association after the final date set by a court for the filing of claims against the liquidator or receiver of an insolvent insurer. The Association shall pay only that amount of each unearned premium which is in excess of one hundred dollars;

(b) is considered the insurer to the extent of its obligation on the covered claims and, to this extent, has all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent. However, the Association has the right but not the obligation to defend an insured who is not a resident of this State at the time of the insured event unless the property from which the claim arises is permanently located in this State in which instance the Association does have the obligation to defend the insured;

(c) shall allocate claims paid and expenses incurred among the four accounts separately and assess member insurers separately for each account amounts necessary to pay:

(i) the obligation of the Association under item (a) of this section;

(ii) the expenses of handling covered claims;

(iii) other expenses authorized by this chapter.

The assessments of each member insurer must be in the proportion that the net direct written premiums of the member insurer for the calendar year preceding the insolvency on the kinds of insurance in the account bear to the net direct written premiums of all member insurers for the calendar year preceding the insolvency on the kinds of insurance in the account. Each member insurer must be notified of the assessment not later than thirty days before it is due. No member insurer may be assessed in any year on any account an amount greater than one percent of that member insurer's net direct written premiums for the calendar year preceding the insolvency on the kinds of insurance in the account. If the maximum assessment, together with the other assets of the Association in any account, does not provide in any year an amount sufficient to make all necessary payments from that account, the funds available must be prorated, and the unpaid portion must be paid as soon after proration as funds become available. The Association may exempt or defer, in whole or in part, the payment of an assessment of any member insurer, if the payment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance. Any member insurer serving in the capacity of a servicing carrier for the South Carolina Reinsurance Facility, the South Carolina Windstorm and Hail Underwriting Association, the Medical Malpractice Joint Underwriting Association, or any other involuntary association must not be assessed for the premiums so written, but the assessment must be made directly against the facility, pool, joint underwriting association, or other association. Each member insurer serving as a servicing facility on behalf of the Association may set off against any assessment authorized payments made on covered claims and expenses incurred in the payment of the claims by the member insurer;

(d) shall investigate claims brought against the Association and adjust, compromise, settle, and pay covered claims to the extent of the Association's obligation and deny all other claims and may review settlements, releases, and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which these settlements, releases, and judgments may be properly contested;

(e) shall notify any person the Commissioner directs under Section 38-31-80(2)(a);

(f) shall handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the Commissioner's approval, but designation may be declined by a member insurer;

(g) 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 pay the other expenses of the Association authorized by this chapter;

(h) may employ or retain persons necessary to handle claims and perform other duties of the Association;

(i) may borrow funds necessary to effect the purpose of this chapter in accord with the plan of operation;

(j) may sue or be sued;

(k) may negotiate and become a party to contracts necessary to carry out the purpose of this chapter;

(l) may perform any other acts necessary or proper to effectuate the purpose of this chapter;

(m) may refund to the member insurers in proportion to the contribution of each member insurer to that account that amount by which the assets of the account exceed the liabilities, if, at the end of any calendar year, the board of directors finds that the assets of the Association in any account exceed the liabilities of that account as estimated by the board of directors for the coming year."

Recoverable claims

SECTION 5. Section 38-31-100 of the 1976 Code is amended by adding at the end-

"(3) Any person having a claim or legal right of recovery under any governmental insurance or guaranty program which is also a covered claim is required to exhaust first his right under the program. Any amount payable on a covered claim under this chapter must be reduced by the amount of any recovery under the program.

(4) No claim held by an insurer, reinsurer, insurance pool, or underwriting association, based on an assignment or on rights of subrogation, may be asserted in any legal action against a person insured under a policy issued by an insolvent insurer except to the extent the amount of the claim exceeds the obligation of the Association under this chapter.

(5) Any person who has liquidated by settlement or judgment a claim against an insured under a policy issued by an insolvent. insurer, and the claim is a covered claim and is also a claim within the coverage of any policy issued by a solvent insurer, is required to exhaust first his rights under the policy issued by the solvent insurer before execution, levy, or any other proceedings are begun to enforce any judgment obtained against or the settlement with the insured of the insolvent insurer-"

Board of directors' and commissioner's duties

SECTION 6. Section 38-31-110 of the 1976 Code is amended to read:

"Section 38-31-110. (A) The board of directors, upon majority vote, may make recommendations to the Commissioner for the detection and prevention of insurer insolvencies.

(B) The board of directors, at the conclusion of any insurer insolvency in which the Association was obligated to pay covered claims, may prepare a report on the history and causes of the insolvency, based on the information available to the Association, and submit the report to the Commissioner.

(C) The board of directors, upon majority vote, may respond to requests by the Commissioner to discuss and make recommendations regarding the status of any member insurer whose financial condition may be hazardous to policyholders or the public. These recommendations are not considered public documents."

Immunity and liability

SECTION 7. Section 38-31-150 of the 1976 Code is amended to read:

"Section 38-31-150. There is no liability on the part of, and no cause of action of any nature may arise against, any member insurer, the Association's agents or employees, the board of directors, or the Commissioner or his representatives for any act or omission in the performance or their powers and duties under this chapter. This section does not relieve the Association of any of its liability."

Insolvent insurers

SECTION 8. Section 38-31-160 of the 1976 Code is amended to read:

"Section 38-31-160. All proceedings involving covered claims in which the insolvent insurer is a party or is obligated to defend a party in any court in this State must be stayed ninety days from the date insolvency is determined to permit proper defense by the Association. The court may stay the proceedings for a longer period of time if the court finds the additional time is necessary to permit proper defense by the Association. As to any judgment, decision, order, verdict, or finding based on the insurer's default or failure to defend the insured, the Association may apply to have the judgment, decision, order, verdict, or finding set aside by the same court or administrator which made it and must be permitted to defend against the claim on its merit"

Repeal

SECTION 9. Section 38-31-180 of the 1976 Code is repealed.

Time effective

SECTION 10. This act takes effect upon a by the Governor.