California Insurance Guarantee Association, Oklahoma Property and Casualty Insurance Guaranty Association, and Texas Property and Casualty Insurance Guaranty Association v. Hill Brothers Transportation, Inc. ( 2015 )

ACCEPTED
03-15-00314-CV
6400418
THIRD COURT OF APPEALS
AUSTIN, TEXAS
8/7/2015 10:52:52 AM
JEFFREY D. KYLE
CLERK
CAUSE NO. 03-15-00314-CV
FILED IN
3rd COURT OF APPEALS
IN THE THIRD COURT OF APPEALS AUSTIN, TEXAS
AT AUSTIN 8/7/2015 10:52:52 AM
JEFFREY D. KYLE
Clerk
CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, OKLAHOMA PROPERTY
AND CASUALTY INSURANCE GUARANTY ASSOCIATION, AND TEXAS PROPERTY
AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Appellants
v.
HILL BROTHERS TRANSPORTATION, INC., Appellee
APPEAL FROM CAUSE NO. D-1-GN-09-001010
201ST JUDICIAL DISTRICT COURT OF TRAVIS COUNTY, TEXAS
HON. LORA LIVINGSTON PRESIDING
APPELLANTS’ BRIEF
ORAL ARGUMENT REQUESTED
Dan Price (SBN 24041725)
James Loughlin (SBN 00795489)
STONE LOUGHLIN & SWANSON, LLP
P.O. Box 30111
Austin, Texas 78755
(512) 343-1300
(512) 343-1385 Fax
dprice@slsaustin.com
Attorneys for Appellants
IDENTITY OF PARTIES AND COUNSEL
Appellants/Plaintiffs:
California Insurance Guarantee Association (“CIGA”)
Oklahoma Property and Casualty Insurance Guaranty Association (“OPCIGA”)
Property and Casualty Insurance Guaranty Association (“TPCIGA”)
Counsel for Appellants/Plaintiffs (Trial Court and Appeal):
Dan Price
James Loughlin
STONE LOUGHLIN & SWANSON, LLP
P.O. Box 30111
Austin, Texas 78755
(512) 343-1300
Appellee/Defendant:
Hill Brothers Transportation, Inc. (“Hill Bros.”)
Counsel for Appellee/Defendant (Trial Court and Appeal):
Adrian Ciechanowicz
William Johnson
Leila Melhem
DUGGINS WREN MANN & ROMERO, LLP
P.O. Box 1149
Austin, Texas 78767-1149
(512) 744-9300
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 ii
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
INDEX OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x
STATEMENT REGARDING ORAL ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . xi
ISSUES PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. About the Guaranty Associations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. Guaranty Associations are Statutorily Created
Entities Which Protect Citizens in the Event of an
Insurer’s Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. The Guaranty Associations have the Authority to
Enforce the Terms of the Policies Within the Scope
of the Act.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
B. Hill Bros. Was Insured Under the Policy. . . . . . . . . . . . . . . . . . . . . . . 4
C. The Policy Required Hill Bros. to Reimburse Deductibles
Within 30 Days of Demand.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
D. Hill Bros.’ Extra-Contractual Deductible Reimbursement
Arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Legion Liquidation Proceedings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 iii
F. After Liquidation, Pennsylvania Law Required Legion in
Liquidation to Invoice Mutual Indemnity for Hill Bros.’
Deductible Obligation to the Guaranty Associations.. . . . . . . . . . . . 10
G. Hill Bros. Failed to Meet its Contractual Obligations Under
the Policy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SUMMARY OF ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARGUMENT AND AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Standard of Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ISSUE ONE: Can a guaranty association’s cause of action for breach
of contract for failure to reimburse amounts paid within the
deductibles of a workers’ compensation policy accrue prior to: (1) a
judicial finding that a property and casualty insurer is insolvent
and/or the insurer has been designated impaired by the Texas
Commissioner of Insurance, (2) the guaranty association’s payment
of the deductible amounts that are the subject of its suit, and (3) the
guaranty association making demand for reimbursement?. . . . . . . . . . . . . 19
A. The Guaranty Associations Did Not Have Standing to Take
Any Action Under the Policy on April 1, 2002... . . . . . . . . . . . . . . . 20
1. TPCIGA Did Not Have Standing To Discharge the
Policy Obligations Until at Least October 25, 2002.. . . . . . . . 20
2. CIGA and OPCIGA Did Not Have Standing To
Discharge Policy Obligations Until July 28, 2003.. . . . . . . . . 21
B. On April 1, 2002, the Guaranty Associations Had Not Yet
Paid Any of the Covered Claims For Which They Sued
Hill Bros... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 iv
C. On April 1, 2002, the Guaranty Associations had Not Yet
Made Demand on Hill Bros. for Reimbursement of
Deductibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ISSUE TWO: Is the Guaranty Associations’ compliance with the
Pennsylvania Act a mitigating circumstance making the
reasonableness of their alleged delay in making demand or filing suit
against Hill Bros. a fact question?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ISSUE THREE: Is the Policy a continuing contract that must be fully
performed before the Guaranty Associations’ causes of action for
breach of contract can accrue?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
A. The Policy is a Continuing Contract.. . . . . . . . . . . . . . . . . . . . . . . . . 29
B. The Statute of Limitations Did Not Accrue on This
Continuing Contract Until it was Fully Performed on April
28, 2009.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ISSUE FOUR: Are the Guaranty Associations’ causes of action for
failure to reimburse deductibles barred in whole when some
deductible payments were made within four years from the date suit
was filed?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CONCLUSION AND PRAYER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CERTIFICATE OF COMPLIANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
CERTIFICATE OF SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
APPENDIX
TEX. INS. CODE. art. 21.28-C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 1
CAL. INS. CODE §§ 1063.1(c)(1), 1063.2(b). . . . . . . . . . . . . . . . . . . . . . Tab 2
36 OKLA. STAT. ANN. §§ 2004(6), 2004(8), 2007(A)(2). . . . . . . . . . . . Tab 3
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 v
The Policy WC1-1945251.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 4
Wyoming Medical Center, Inc. v. Wyoming Ins.Guar. Ass’n,
225 P.3d 1061, 1068 (Wyo. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 5
40 PA. CONS. STAT. § 221.23a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 6
2004 Pa. Legis. Serv. 2004-46 (S.B. No. 815). . . . . . . . . . . . . . . . . . . . Tab 7
Canal Ins. Co. v. Pro Search,
648 S.E.2d 497, 498 (Ga. Ct. App. 2007).. . . . . . . . . . . . . . . . . . . . . . . Tab 8
AMS Constr. Co., Inc. v. Reliance Ins. Co.,
No. Civ.A. 04-CV-2097, 2004 WL 2600792
(E.D. Penn. Nov. 15, 2004).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 9
Final Summary Judgment, dated March 6, 2015. . . . . . . . . . . . . . . . . Tab 10
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 vi
INDEX OF AUTHORITIES
Cases:
AMS Constr. Co., Inc. v. Reliance Ins. Co.,
No. Civ.A. 04-CV-2097, 2004 WL 2600792 (E.D. Penn. Nov. 15, 2004). . . 27-28
Canal Ins. Co. v. Pro Search,
648 S.E.2d 497, 498 (Ga. Ct. App. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . 24, 30-31
Dell Computer Corp. v. Rodriguez,
390 F.3d 377, 392 (5th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Durish v. Channelview Bank,
809 S.W.2d 273, 275-77 (Tex.App.–Austin 1991, writ denied). . . . . . . . . . . . . . . 2
F.D. Stella Products Co. v. Scott,
875 S.W.2d 462, 465 (Tex. App.–Austin 1994). . . . . . . . . . . . . . . . . . . . . . . . 32-33
Hubble v. Lone Star Contracting Corp.,
883 S.W.2d 379, 381 (Tex.App.–Fort Worth 1994. . . . . . . . . . . . . . . . . . . . . 29-30
Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc.,
962 S.W.2d 507, 514 (Tex. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
KPMG Peat Marwick v. Harrison County Housing Finance Corp.,
988 S.W.2d 746, 748 (Tex. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Latter v. Autry,
853 S.W.2d 836, 839 n.1 (Tex. App.–Austin 1993). . . . . . . . . . . . . . . . . . . . . . . . . 2
Lear Sigler, Inc. v. Perez,
819 S.W.2d 470, 471 (Tex. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Morriss v. Enron Oil & Gas Co.,
948 S.W.2d 858, 869 (Tex.App.–San Antonio 1997).. . . . . . . . . . . . . . . . . . . . . . 18
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 vii
Murray v. San Jacinto Agency, Inc.,
800 S.W.2d 826, 828 (Tex. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Myer v. Cuevas,
119 S.W.3d 830, 834 (Tex. App.–San Antonio 2003) .. . . . . . . . . . . . . . . . . . . . . 22
Nixon v. Mr. Property Mgmt. Co.,
690 S.W.2d 546, 548-49 (Tex. 1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Nobles v. Marcus,
533 S.W.2d 923, 927 (Tex. 1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Rhône-Poulenc, Inc. v. Steel,
997 S.W.2d 217, 223 (Tex. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Rolling Lands Investments, L.C. v Nw. Airport Mgmt. L.P.,
111 S.W.3d 187, 196 (Tex. App.–Texarkana 2003). . . . . . . . . . . . . . . . . . . . . . . . 23
Spin Doctor Golf, Inc. v. Paymentech, L.P.,
296 S.W.3d 354, 363 (Tex.App.–Dallas 2009).. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Stevens v. State Farm Fire and Cas. Co.,
929 S.W.2d 665, 671 (Tex. App.–Texarkana 1996). . . . . . . . . . . . . . . . . . . . . 23, 26
Velsicol Chem. Corp. v. Winograd,
956 S.W.2d 529, 530 (Tex. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-18
Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,
225 P.3d 1061, 1068 (Wyo. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statutes:
CAL. INS. CODE §1063.1(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 21
CAL. INS. CODE §1063.2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
36 OKLA. STAT. ANN. § 2004(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 21
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 viii
36 OKLA. STAT. ANN. § 2004(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
36 OKLA. STAT. ANN. § 2007(A)(2) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
40 PA. CONS. STAT. § 221.23a.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 26-28
40 PA. CONS. STAT. § 221.23a(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 26
40 PA. CONS. STAT. § 221.23a(g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 26-27
2004 Pa. Legis. Serv. 2004-46 (S.B. No. 815). . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
TEX. CIV. PRAC. & REM. CODE § 16.004.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TEX. INS. CODE. art. 21.28-C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TEX. INS. CODE. art. 21.28-C § 5(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TEX. INS. CODE. art. 21.28-C § 5(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 20
TEX. INS. CODE. art. 21.28-C § 8(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 20
Rules:
TEX. R. APP. P. 9.4(i)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
TEX. R. APP. P. 39.1(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
TEX. R. CIV. P. 166a(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 ix
STATEMENT OF THE CASE
Plaintiffs/Appellants CIGA, OPCIGA, and TPCIGA (collectively, the
“Guaranty Associations”) sued Defendant/Appellee Hill Bros. for breach of contract
in an action filed on March 31, 2009.1 (CR 4). The suit alleges Hill Bros. failed to
reimburse the Guaranty Associations for their payment of workers’ compensation
benefits and claim handling expenses within the per claim deductible limits of a
workers’ compensation policy issued to Hill Bros. by Legion Insurance Company
(“Legion”) identified by policy no. WC1-1945251 (the “Policy”). (CR 295). Hill
Bros. answered alleging the suit was barred by the statute of limitations. (CR 982).
Hill Bros. filed a motion for summary judgment on January 5, 2015 arguing,
among other things, the Guaranty Associations’ claims are barred because the breach
of contract causes of action accrued on April 1, 2002, when Hill Bros. stopped
making its premium and deductible payments to Legion. (CR 2063).
The Honorable Lora Livingston granted Hill Bros.’ summary judgment on
limitations only (CR 3889), explaining in her letter ruling that the Guaranty
Associations had the “duty to sue within four years of the date that Legion’s cause of
action accrued against Hill Brothers.” (CR 3790).
1
The Florida Workers’ Compensation Insurance Guaranty Association, Illinois
Insurance Guaranty Fund, and the Nebraska Property and Liability Insurance Guaranty Association
were also plaintiffs in the Original Petition. These parties were dismissed with prejudice on February
10, 2015, and are not parties to this appeal. (CR 3796).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 x
STATEMENT REGARDING REQUEST FOR ORAL ARGUMENT
The Court should grant oral argument because oral argument would give the
Court a more complete understanding of the facts presented in this appeal, and would
allow the Court to better analyze the complicated legal issues presented in this appeal.
See TEX. R. APP. P. 39.1(c).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 xi
ISSUES PRESENTED
Issue 1: Can a guaranty association’s cause of action for breach of contract for
failure to reimburse amounts paid within the deductibles of a workers’
compensation policy accrue prior to: (1) a judicial finding that a
property and casualty insurer is insolvent and/or the insurer has been
designated impaired by the Texas Commissioner of Insurance, (2) the
guaranty association’s payment of the deductible amounts that are the
subject of its suit, and (3) the guaranty association making demand for
reimbursement?
Issue 2: Is the Guaranty Associations’ compliance with the Pennsylvania Act a
mitigating circumstance making the reasonableness of their alleged
delay in making demand or filing suit against Hill Bros. a fact question?
Issue 3: Is the Policy a continuing contract that must be fully performed before
the Guaranty Associations’ causes of action for breach of contract can
accrue?
Issue 4: Are the Guaranty Associations’ causes of action for failure to reimburse
deductibles barred in whole when some deductible payments were made
within four years of the date suit was filed?
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 xii
CAUSE NO. 03-15-00314-CV
IN THE THIRD COURT OF APPEALS
AT AUSTIN
CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, OKLAHOMA PROPERTY
AND CASUALTY INSURANCE GUARANTY ASSOCIATION, AND TEXAS PROPERTY
AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Appellants
v.
HILL BROTHERS TRANSPORTATION, INC., Appellee
APPEAL FROM CAUSE NO. D-1-GN-09-001010
201ST JUDICIAL DISTRICT COURT OF TRAVIS COUNTY, TEXAS
HON. LORA LIVINGSTON PRESIDING
APPELLANTS’ BRIEF
TO THE HONORABLE COURT OF APPEALS:
Appellants CIGA, OPCIGA, and TPCIGA (collectively, the “Guaranty
Associations”) file this their Appellants’ Brief asking the Court to reverse the
summary judgment granted against them on the issue of limitations.
STATEMENT OF FACTS
A. About the Guaranty Associations
1. Guaranty Associations are Statutorily Created Entities Which Protect
Citizens in the Event of an Insurer’s Insolvency.
The Guaranty Associations are statutory entities created and governed by the
laws of their respective jurisdictions to provide protection to insureds and claimants
against the hardships of property and casualty insurer insolvencies.2 Under the
various guaranty association statutes, upon the entry of an order of liquidation by a
court of competent jurisdiction determining the insolvency of an insurance company
licensed in the state of the guaranty association, or by the designation of a company
as an “impaired insurer” by the Texas Commissioner of Insurance, the Guaranty
Associations become obligated to pay “covered claims” arising under certain policies
issued by the insolvent insurer.
2
Effective April 1, 2007, the Texas Property and Casualty Guaranty Act (the “Texas
Act”) was codified into the TEXAS INSURANCE CODE at chapter 462. The pre-codified Texas Act,
TEX. INS. CODE art. 21.28-C (Vernon), applies to this matter because Legion was designated an
impaired insurer on October 25, 2002, prior to codification. The Court must focus on the Texas Act
as it appeared at the time of impairment for TPCIGA. See Latter v. Autry, 853 S.W.2d 836, 839 n.1
(Tex. App.–Austin 1993) (citing Durish v. Channelview Bank, 809 S.W.2d 273, 275-77
(Tex.App.–Austin 1991, writ denied)). For that reason, all statutory references in this motion refer
to the sections of the Texas Act as provided in the pre-codified TEX. INS. CODE ANN. art. 21.28-C,
in effect on October 25, 2002. The remaining Appellants’ statutory obligations were triggered on
July 28, 2003, when the Commonwealth Court of Pennsylvania issued its Order of Liquidation of
Legion. This brief cites to the guaranty statutes in California (the “California Act”) and Oklahoma
(the “Oklahoma Act”) which were in effect on July 28, 2003.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 2
“Covered claims,” in general, are claims arising out of and within the coverage
of a policy of insurance issued by an insolvent insurer to a resident of the state of the
guaranty association’s domicile.3
2. The Guaranty Associations have the Authority to Enforce the Terms of
the Policies Within the Scope of the Act.
To maintain sufficient assets to fulfill their statutory purpose, the Guaranty
Associations’ liability is strictly limited to payment of “covered claims.” The
Guaranty Associations are empowered to enforce the duties and obligations imposed
on the insured under any policy of insurance within the scope of the guaranty statutes,
including enforcing the obligation to pay deductibles.4
3
See CAL. INS. CODE ANN. § 1063.1(c)(1) (West 2002) (California: “covered claim”
means an unpaid “obligation[] of an insolvent insurer . . . within the coverage of an insurance policy
of the insolvent insurer . . . presented as a claim to the . . . [guaranty] association . . . ; which were
incurred prior to the date coverage . . . terminated and prior to, on, or within 30 days after the
liquidator was appointed; . . . in the case of a policy of workers’ compensation insurance, to provide
workers’ compensation benefits under the workers’ compensation laws of [California]”); 36 OKLA.
STAT. ANN. § 2004(6) (West 2002) (Oklahoma: “‘Covered claim’ means an unpaid claim of an
insured or third party liability claimant . . . which arises out of and is within the coverage . . . of an
insurance policy to which [the Oklahoma act] applies and is issued by . . . an insolvent insurer . . .
and . . . the claimant or insured is a resident of [Oklahoma] at the time of the insured event. . . .”);
and TEX. INS. CODE art. 21.28-C § 5(8) (Texas: “‘Covered claim’ means an unpaid claim of an
insured or third-party liability claimant that arises out of and is within the coverage . . . of an
insurance policy to which this Act applies, issued . . . by an insurer licensed to do business in
[Texas], if that insurer becomes an impaired insurer and the third-party claimant or liability claimant
or insured is a resident of [Texas] at the time of the insured event. . . .”).
4
CAL. INS. CODE ANN. § 1063.2(b) (West 2002) (CIGA “shall have the same rights as
the insolvent insurer would have had if not in liquidation. . . .”); 36 OKLA. STAT. ANN. § 2007(A)(2)
(West 2002) (OPCIGA shall “[b]e deemed the insurer to the extent of the obligations on covered
claims and to that extent shall have all rights, duties and obligations of the insolvent insurer as if the
insurer had not become insolvent.”); and TEX. INS. CODE. art. 21.28-C § 8(b) (TPCIGA shall
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 3
B. Hill Bros. Was Insured Under the Policy
Hill Bros. was insured under a workers’ compensation insurance policy issued
by Legion for policy period September 1, 2001, through September 1, 2002,
identified by policy no. WC1-1945251.5 (CR 2513). The Policy contained large
deductible endorsements under which Hill Bros. received a substantial premium
discount, but which required Hill Bros. to reimburse Legion for the first $250,000 of
claims and claim handling expenses paid on each claim. (CR 2044; CR 2506 at ¶¶5-6;
CR 2513-2514; CR 2914 ¶4).
C. The Policy Required Hill Bros. to Reimburse Deductibles Within 30 Days
of Demand
The deductible endorsements in the Policy required Hill Bros. to reimburse
Legion for the amounts paid within the deductible within 30 days after demand was
made by Legion. None of the endorsements required Legion to make demand within
“discharge the policy obligations of the impaired insurer, . . . to the extent that the policy obligations
are covered claims under [the Texas guaranty act],” and shall “enforce any duty imposed on the
insured party or beneficiary under the terms of any policy of insurance within the scope of [the Texas
guaranty act].”). See Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,
225 P.3d 1061, 1068 (Wyo. 2010) (holding that the Wyoming Insurance Guaranty Association was
“entitled to reimbursement of deductibles just as [the insurer] would have been had it remained
solvent.”).
5
A true and correct copy of the Policy is provided for the Court’s convenience at Tab
4 of the Appendix.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 4
a specified time frame. The applicable provisions from the Kansas, Nebraska,
Oklahoma, and Texas deductible endorsements provide as follow:
Kansas:
6. We will have the right at our discretion, to pay any amounts
within the deductible amounts or to pay allocated loss adjustment
expenses to effect settlement of any claim or suit, and you shall
reimburse us for any sums we may have paid.
7. Upon notification of payments by us, you will promptly reimburse
us for any such amounts that we have paid. If you fail to
reimburse us, we may, at our option, cancel either this
endorsement or this policy by mailing or delivering to you not
less than ten days advance written notice stating when the
cancellation is to take effect. Any resulting return premium may
be applied to the reimbursement amounts due.
(CR 2552).
Nebraska:
6. We will have the right at our sole discretion to pay any amounts
within the deductible amounts or to pay allocated loss adjustment
expenses to effect settlement of any claim or suit, and you shall
reimburse us for any sums we may have paid.
7. Upon notification of payments by us, you will promptly reimburse
us for any such amounts that we have paid. If you fail to
reimburse us, we may, at our option, cancel either this
endorsement or this policy by mailing or delivering to you not
less than ten days advance written notice stating when the
cancellation is to take effect. Any resulting return premium may
be applied to the reimbursement amounts due.
(CR 2557).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 5
Oklahoma:
6. We will have the right at our sole discretion, to pay any amounts
within the large deductible limits or to pay allocated loss
adjustment expenses within the large deductible limits to effect
settlement of any claim or suit, and you shall reimburse us for any
sums we may have paid.
7. Upon notification of payments by us, you will promptly reimburse
us for any such amounts that we have paid. If you fail to
reimburse us, we may cancel this endorsement by mailing or
delivering to you not less than ten days advance written notice
stating when the cancellation is to take effect. We will remain
fully responsible for the full amount of all claims incurred prior
to the effective date of cancellation. The failure to reimburse the
insurer will not affect coverage for an eligible insured employee
under the policy.
(CR 2559-2560).
Texas:
4. We will pay the deductible amount for you, but you must
reimburse us within 30 days after we send you notice that
payment is due. We will send you notice that payment is due on
a periodic basis, but not more frequently than on a monthly basis.
If you fail to fully reimburse us when due, we may cancel the
policy for nonpayment of premium. We may keep the amount of
unearned premium that will reimburse us for the payments we
made. These rights are in addition to other rights we have to be
reimbursed.
(CR 2554).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 6
D. Hill Bros.’ Extra-Contractual Deductible Reimbursement Arrangement
To meet its deductible reimbursement obligation to Legion under the Policy,
Hill Bros. entered into a three-part, extra-contractual deductible reimbursement
arrangement with third parties Mutual Indemnity (Bermuda) Ltd. (“Mutual
Indemnity”) and Mutual Holdings (Bermuda) Ltd. (“Mutual Holdings”).
Under the first part of the arrangement, Hill Bros. executed a Deductible
Reimbursement Policy with Mutual Indemnity pursuant to which Mutual Indemnity
paid the deductible amounts due under the Policy directly to Legion on Hill Bros.’
behalf. (CR 2935-2936). The Deductible Reimbursement Policy created a course of
action whereby Legion billed Mutual Indemnity for deductibles due under the Policy
while Mutual Indemnity made all deductible reimbursement payments directly to
Legion. (CR 2507 ¶¶8, 10).
As a condition of its Deductible Reimbursement Policy with Mutual Indemnity,
and representing the second part of the arrangement, Hill Bros. was required to
comply with the requirements of a Shareholder Agreement which it executed with
Mutual Holdings. (CR 2935). The Shareholder Agreement stated that Hill Bros.
would provide sufficient funds to both Mutual Indemnity and Mutual Holdings to
indemnify each for any losses that they may suffer in administering the Deductible
Reimbursement Policy for Hill Bros. The provision obligated Hill Bros. to provide
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 7
payment or collateral to Mutual Holdings or Mutual Indemnity following 30 days
written notice that additional payments were needed so that Mutual Indemnity could
make the required deductible reimbursement payments to Legion.
The third part of the arrangement was an excess of loss reinsurance agreement
between Mutual Indemnity and Legion which created an aggregate limit of liability
on Mutual Indemnity’s obligations under its Deductible Reimbursement Policy with
Hill Bros. (CR 2507 ¶9, CR 2567).
Despite this complex arrangement with Mutual Indemnity and Mutual
Holdings, Hill Bros. remained directly liable to Legion under the Policy for the
deductible payments made on Hill Bros.’ behalf.
E. Legion Liquidation Proceedings
Effective April 1, 2002, the Commonwealth Court of Pennsylvania placed
Legion in receivership for rehabilitation, naming the Pennsylvania Insurance
Commissioner as Rehabilitator (“Order of Rehabilitation”). (CR 2083 ¶2).
Pursuant to the Order of Rehabilitation, the Rehabilitator was prohibited from
disavowing any policies or contracts of insurance as a result of the rehabilitation. The
order expressly stated: “The entry of this Order of Rehabilitation shall not constitute
an anticipatory breach of any such contracts.” (CR 2087 ¶17).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 8
On October 23, 2002, an ancillary receiver was appointed and Legion was
declared insolvent by the 200th Judicial District Court of Travis County, Texas. On
October 25, 2002, the Commissioner of Insurance of the State of Texas issued an
Order of Impairment designating Legion as an impaired insurer (“Impairment
Order”). (CR 2912). The ancillary receivership order and the Impairment Order
triggered the statutory obligations of TPCIGA to pay “covered claims” under policies
of insurance issued by Legion, including the Policy at issue in this case.
Effective July 28, 2003, the Commonwealth Court of Pennsylvania declared
Legion insolvent, entered an order of liquidation with a finding of insolvency
(“Liquidation Order”), and named the Pennsylvania Commissioner as Legion’s
“Liquidator.”6 (CR 2903). The Liquidation Order triggered the statutory obligations
of CIGA and OPCIGA to pay “covered claims” under the policies of insurance issued
by Legion, including the Policy at issue in this case.
Beginning with the issuance of these orders, the Guaranty Associations began
paying “covered claims” under the Policy.
6
Effective July 28, 2003, Legion became “Legion in Liquidation,” the entity is
identified by this name for events occurring after this date.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 9
CIGA’s first payment on a “covered claim” was issued on March 4, 2003 (CR
2975, see $622), and CIGA’s last payment on a “covered claim” was issued on April
24, 2007. (CR 2977, see $84 payment).
OPCIGA’s first payment on a “covered claim” was issued on September 24,
2003 (CR 2885, see $528 payment), and OPCIGA’s last payment on a “covered
claim” was issued on April 28, 2009, after suit was filed. (CR 2890, see $112.40
payment).
TPCIGA’s first payment on a “covered claim” was issued on October 7, 2003
(CR 2898, see $3,556 payment), and TPCIGA’s last payment on a “covered claim”
was issued on February 19, 2007. (CR 2897, see $3.78 payment).
In total, the Guaranty Associations paid $274,188.94 in unreimbursed “covered
claims” within the deductible limits of the Policy. (CR 2719).7
F. After Liquidation, Pennsylvania Law Required Legion in Liquidation to
Invoice Mutual Indemnity for Hill Bros.’ Deductible Obligation to the
Guaranty Associations
Although the orders triggered the Guaranty Associations’ statutory obligations
to make payments under the Policy, Pennsylvania law required Legion in Liquidation
to continue to invoice Mutual Indemnity and collect reimbursement for the payments
7
Of this total, CIGA paid $29,648.82, OPCIGA paid $126,209.00, and TPCIGA paid
$117,770.12. (CR 2719).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 10
the Guaranty Associations made on Hill Bros.’ behalf within the deductible limits
under the Policy. See 40 PA. CONS. STAT. § 221.23a (2004).8
In accordance with 40 PA. CONS. STAT. § 221.23a(g) (2004) (the “Pennsylvania
Act”), after collecting deductible reimbursements paid by Mutual Indemnity on Hill
Bros.’ behalf, Legion in Liquidation was then required to reimburse the Guaranty
Associations for the claims payments which the Guaranty Associations made in
accordance with Policy. If efforts at collection from Mutual Indemnity for
reimbursement of deductibles paid by the Guaranty Associations failed, the
Pennsylvania Act required Legion in Liquidation to then bill Hill Bros. for
reimbursement of deductibles. Id.
From the inception of the Policy through at least mid-2005, Legion in
Liquidation invoiced Mutual Indemnity for the payments it and the Guaranty
Associations made within the deductible limits on the Policy. (CR 2507-2508). Until
at least mid-2005, Mutual Indemnity made reimbursement payments to Legion on Hill
Bros.’ behalf. (CR 2507-2508, CR 2050).
8
A true and correct copy of 40 PA. CONS. STAT. § 221.23a (2004), is included in the
Appendix to this Brief.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 11
G. Hill Bros. Failed to Meet its Contractual Obligations Under the Policy
On or about August 22, 2005, Mutual Indemnity sent Hill Bros. a request for
additional funds required to meet Hill Bros.’ deductible obligations under the Policy.
(CR 2940). Hill Bros. failed and refused to provide the requested funds to Mutual
Indemnity contrary to the contractual arrangement among Mutual Indemnity, Mutual
Holdings, and Hill Bros. After a second request on October 11, 2005 by Mutual
Indemnity was fruitless, Mutual Indemnity referred the file to Legion in Liquidation
for collection. (CR 2943, CR 2945).
Because efforts at collection from Mutual Indemnity failed, in accordance with
the Pennsylvania Act, Legion in Liquidation sent collection letters to Hill Bros. on
December 14, 2005, January 13, 2006, June 28, 2006, and June 24, 2008. The letters
demanded reimbursement of the deductible amounts paid by Legion and the Guaranty
Associations under the Policy.
The December 14, 2005 letter explained to Hill Bros. why Legion in
Liquidation was seeking reimbursement directly from Hill Bros., and stated that the
amount due within the deductibles was limited by the extra-contractual arrangement
among Legion, Mutual Indemnity, and Hill Bros. The total amount then demanded
was $145,373.27. (CR 2945). The January 13, 2006 letter enclosed a copy of the
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 12
December letter and asked that the deductible reimbursement liability be “addressed
without further delay.” (CR 2951).
The June 28, 2006 letter explained that Mutual Indemnity provided an
additional $30,823.75 to Legion in Liquidation on Hill Bros.’ behalf and that Hill
Bros.’ deductible reimbursement liability, as limited by the extra-contractual
arrangement, was now reduced to $114,549.52. (CR 2952).
As a result of this additional payment by Mutual Indemnity, Legion in
Liquidation was fully reimbursed for the amounts Legion had paid on Hill Bros.’
behalf within the deductibles of the Policy. (CR 2719). Following this payment by
Mutual Indemnity, however, deductible amounts remained due to the Guaranty
Associations. (CR 2719).
In its June 24, 2008 demand letter, Legion in Liquidation advised Hill Bros.
that it was referring for collection to the Guaranty Associations the unreimbursed
deductible amounts due to the Guaranty Associations. Hill Bros. was advised that the
Guaranty Associations may pursue all claims and claim handling expenses paid
within the per-claim deductible limits regardless of any extra-contractual arrangement
among Hill Bros., Legion, and Mutual Indemnity. (CR 2968).
On March 13, 2009, the Guaranty Associations sent to Hill Bros a demand
letter for the total amount of unreimbursed deductible payments made on Hill Bros.’
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 13
behalf by the Guaranty Associations. In the letter, the Guaranty Associations
explained that Legion’s Reinsurance Agreement with Mutual Indemnity is not within
the coverage of the applicable guaranty statutes. Therefore, the Aggregate Cap that
limited Legion in Liquidation’s collection to $114,549.52 did not in any way limit the
Guaranty Associations’ collection of the entire sum which they have paid within the
deductible limits on the Policy. (CR 2970-2971).
Hill Bros. never reimbursed the Guaranty Associations for the outstanding
deductible amounts.
On March 31, 2009, the Guaranty Associations filed their original petition in
this case alleging Hill Bros. breached its contractual obligations under the Policy by
failing and refusing to reimburse the Guaranty Associations for their payment of
claims and claims handling expenses within the per claim deductible limit of the
Policy.9 (CR 7).
9
The Florida Workers’ Compensation Insurance Guaranty Association, Illinois
Insurance Guaranty Fund, and the Nebraska Property and Liability Insurance Guaranty Association
were plaintiffs in the Original Petition. These parties were dismissed with prejudice on February 10,
2015, and are not parties to this appeal. (CR 3796).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 14
SUMMARY OF ARGUMENT
The District Court erred in granting summary judgment because the statute of
limitations does not bar the Guaranty Associations’ right to recover their payment of
“covered claims” within the deductible limits of the Policy. The statute of limitations
cannot accrue against the Guaranty Associations for breach of the deductible
reimbursement provisions until at least three events occur. First, the statutory
obligation to pay “covered claims” must be triggered by an adjudication of an
insurer’s insolvency by a court of competent jurisdiction and, in the case of TPCIGA,
the designation of the insurer as an “impaired insurer” by the Texas Commissioner
of Insurance. Second, the Guaranty Associations must have paid the “covered claims”
for which they seek reimbursement in this suit. And third, the Guaranty Associations
must have made demand for reimbursement of the deductible amounts and Hill Bros.
must have failed to reimburse the Guaranty Associations within thirty days of the
demand. Because none of these three events occurred by April 1, 2002, the District
Court’s summary judgment is wrong as a matter of law.
Any alleged delay in the Guaranty Associations’ making demand or filing of
this suit was caused by their compliance with the Pennsylvania Act. Whether or not
the Guaranty Associations’ compliance with the Pennsylvania Act was reasonable is
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 15
a fact question that must be presented to the trier of fact, and this outstanding fact
question precludes summary judgment.
Regardless of any alleged delay in making demand or filing suit, the Guaranty
Associations contend their suit was timely filed within the limitations period. The
Policy was a continuing contract requiring ongoing payments of workers’
compensation benefits for the benefit of Hill Bros.’ injured employees. The Policy
was not fully performed by the Guaranty Associations until April 28, 2009. Because
this suit for breach of a continuing contract was filed on March 31, 2009, prior to the
date the Policy was fully performed, the statute of limitations does not bar the
Guaranty Associations’ claims.
Alternatively, the Guaranty Associations’ breach of contract claims are not
completely barred by limitations because the Guaranty Associations made payments
within the deductible limits of the Policy within four years of the date suit was filed.
Even if earlier payments are barred by the statute of limitations, the Guaranty
Associations submit the statute of limitations would not bar their recovery of
deductible payments made within four years of the date they filed suit.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 16
ARGUMENT AND AUTHORITIES
The District Court erred in granting summary judgment to Hill Bros. based on
the statute of limitations affirmative defense because the accrual date identified by the
court, April 1, 2002, is wrong as a matter of law. Alternatively, the District Court
erred because the Guaranty Associations raised a fact issue regarding the date their
causes of action accrued.
Standard of Review
The standard for review of a summary judgment is whether the successful
movant met its burden to show that there is no genuine issue of material fact and that
it is entitled to judgment as a matter of law. KPMG Peat Marwick v. Harrison County
Housing Finance Corp., 988 S.W.2d 746, 748 (Tex. 1999) (citing Lear Sigler, Inc.
v. Perez, 819 S.W.2d 470, 471 (Tex. 1991); Nixon v. Mr. Property Mgmt. Co., 690
S.W.2d 546, 548-49 (Tex. 1985)); TEX. R. CIV. P. 166a(c). In conducting its review,
the appellate court shall “take as true all evidence favorable to the nonmovant, and
. . . make all reasonable inferences in the nonmovant’s favor.” KPMG Peat Marwick,
988 S.W.2d at 748 (citing Nixon, 690 S.W.2d at 548-49).
A defendant moving for summary judgment on a limitations affirmative
defense has the burden to conclusively establish the defense. Rhône-Poulenc, Inc. v.
Steel, 997 S.W.2d 217, 223 (Tex. 1999) (citing Velsicol Chem. Corp. v. Winograd,
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 17
956 S.W.2d 529, 530 (Tex. 1997)). First, the movant must establish the applicable
limitations period. Second, the defendant must prove when the cause of action
accrued. “A cause of action generally accrues, and the statute of limitations begins to
run, when facts come into existence that authorize a claimant to seek a judicial
remedy.” Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507,
514 (Tex. 1998) (citing Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828
(Tex. 1990)). If the movant meets its burden, the nonmovant must then raise a fact
issue to avoid summary judgment. Id. (internal citations omitted).
The applicable limitations period for the Guaranty Associations’ breach of
contract suit is four years from the date the causes of action accrued. Morriss v. Enron
Oil & Gas Co., 948 S.W.2d 858, 869 (Tex.App.–San Antonio 1997); TEX. CIV. PRAC.
& REM. CODE § 16.004.
The District Court erred in granting summary judgment because the April 1,
2002 accrual date identified by the court is wrong as a matter of law, and because the
Guaranty Associations raised a fact issue about when their causes of action accrued.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 18
Issue 1: Can a guaranty association’s cause of action for breach
of contract for failure to reimburse amounts paid
within the deductibles of a workers’ compensation
policy accrue prior to: (1) a judicial finding that a
property and casualty insurer is insolvent and/or the
insurer has been designated impaired by the Texas
Commissioner of Insurance, (2) the guaranty
association’s payment of the deductible amounts that
are the subject of its suit, and (3) the guaranty
association making demand for reimbursement?
The answer to this question is no. Before a guaranty association’s breach of
contract claim for failure to reimburse deductibles can accrue, at least three events
must occur. First, the guaranty association’s statutory obligation to pay “covered
claims” of an insolvent insurer must be triggered by order of a court of competent
jurisdiction based on a judicial finding of insolvency and by the Texas Commissioner
of Insurance’s designation that the insurer is impaired. Second, the guaranty
association must pay the amounts within the deductible limits of the policy that are
the subject of its suit. And finally, the guaranty association must make demand to the
insured for reimbursement of the amounts paid within the deductibles.
In this case, the District Court erred because none of these events had occurred
on April 1, 2002.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 19
A. The Guaranty Associations Did Not Have Standing to Take Any Action
Under the Policy on April 1, 2002
The Guaranty Associations are statutory entities created and governed by the
laws of their respective jurisdictions. They become obligated to pay “covered claims”
under policies of insurance issued by insolvent or impaired insurance carriers as
provided in their respective enabling statutes.
On April 1, 2002, the Guaranty Associations’ statutory obligations to pay
“covered claims” had not been triggered by their enabling statutes.
1. TPCIGA Did Not Have Standing To Discharge the Policy Obligations
Until At Least October 25, 2002
In accordance with the Texas Act, TPCIGA becomes obligated to discharge the
policy obligations of a member insurer when that insurer is “placed in temporary or
permanent receivership under an order of a court of competent jurisdiction . . . based
on a finding of insolvency and . . . has been designated an impaired insurer by the
[Texas Commissioner of Insurance].” TEX. INS. CODE art.21.28-C, § 5(9), 8(b).
In this case, Legion was placed in ancillary receivership and a judicial finding
of insolvency was entered by the 200th Judicial District Court, Travis County, on
October 23, 2002. On October 25, 2002, the Texas Commissioner of Insurance
entered the Impairment Order designating Legion an impaired insurer. TPCIGA’s
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 20
statutory obligations were triggered upon entry of the October 25, 2002 Impairment
Order.
Prior to October 25, 2002, TPCIGA had no authority to pay claims or otherwise
discharge the policy obligations of Legion—including the authority to sue Hill Bros.
for breach of the deductible endorsements of the Policy. Because TPCIGA did not
have authority to sue Hill Bros. for breach of the Policy on April 1, 2002, TPCIGA’s
cause of action against Hill Bros. did not accrue on that date.
2. CIGA and OPCIGA Did Not Have Standing To Discharge the Policy
Obligations Until July 28, 2003
Under the California Act and the Oklahoma Act, CIGA’s and OPCIGA’s
statutory obligations are triggered when a court of competent jurisdiction enters an
order of liquidation with a finding of insolvency against a member insurer. CAL. INS.
CODE § 1063.1(c)(1); 36 OKLA. STAT. ANN. § 2004(8). Effective July 28, 2003, the
Commonwealth Court of Pennsylvania entered against Legion the Liquidation Order
with a finding of insolvency.
Prior to July 28, 2003, neither CIGA nor OPCIGA had authority to pay claims
or discharge the policy obligations of Legion—including the authority to sue Hill
Bros. for breach of the Policy. Because CIGA and OPCIGA did not have authority
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 21
to sue Hill Bros. for breach of the Policy on April 1, 2002, their causes of action
against Hill Bros. did not accrue on that date.
B. On April 1, 2002, the Guaranty Associations Had Not Yet Paid Any of the
Covered Claims For Which They Sued Hill Bros.
No cause of action may accrue to the benefit of a plaintiff until its legal right
to reimbursement is breached. See Myer v. Cuevas, 119 S.W.3d 830, 834 (Tex.
App.–San Antonio 2003) (“Without breach of a legal right belonging to the plaintiff,
no cause of action can accrue to his benefit.”) (citing Nobles v. Marcus, 533 S.W.2d
923, 927 (Tex. 1976)).
In this case, the Guaranty Associations sued Hill Bros. for failure to reimburse
on demand the Guaranty Associations for their payment of covered claims within the
deductible limits of the Policy. All of the payments subject to the Guaranty
Associations’ suit occurred after their statutory obligations were triggered (i.e., after
October 25, 2002, for TPCIGA, and after July 28, 2003, for CIGA and OPCIGA). The
Guaranty Associations had no right to reimbursement for their deductible payments
they made until they actually made the deductible payments for which they sued.
The first payments by each of the Guaranty Associations of a “covered claim”
under the Policy were made on the following dates: CIGA, March 4, 2003; OPCIGA,
September 24, 2003; and TPCIGA, October 7, 2003.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 22
Because on April 1, 2002, the Guaranty Associations had not yet made any
deductible payments under the Policy, as a matter of law, their causes of action did
not accrue on April 1, 2002.
C. On April 1, 2002, the Guaranty Associations had Not Yet Made Demand
on Hill Bros. for Reimbursement of Deductibles.
“[W]hen demand is an integral part of a cause of action, or demand is a
condition precedent to the right to sue, the statute of limitations does not begin to run
until demand has been made unless the right to make a demand was waived or
unreasonably delayed.” Rolling Lands Investments, L.C. v Nw. Airport Mgmt. L.P.,
111 S.W.3d 187, 196 (Tex. App.–Texarkana 2003) (internal citations omitted). See
Stevens v. State Farm Fire and Cas. Co., 929 S.W.2d 665, 671 (Tex. App.–Texarkana
1996).
The deductible endorsements in the Policy required Legion (prior to liquidation
and impairment) and the Guaranty Associations (after liquidation and impairment)
to make demand on Hill Bros. for reimbursement of deductible amounts. The
endorsements do not specify a time by which demand had to be made, only that Hill
Bros. must “promptly reimburse” the deductibles or reimburse the deductibles “within
30 days.” See e.g., (CR 2552) (“Upon notification of payments by us, you will
promptly reimburse us for any such amounts that we have paid.”); (CR 2557) (same);
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 23
CR 2559-60(same); and CR 2554 (“We will pay the deductible amount for you, but
you must reimburse us within 30 days after we send you notice that payment is due.
We will send you notice that payment is due on a periodic basis, but not more
frequently than on a monthly basis.”). Absent a demand, Hill Bros. would have no
notice of the amounts paid within the deductibles for which it is liable and for which
payment was due under the Policy.
In Canal Ins. Co. v. Pro Search, 648 S.E.2d 497, 498 (Ga. Ct. App. 2007), a
Georgia appellate court reached the same conclusion in construing similar deductible
endorsement language in a workers’ compensation policy. The endorsement in Canal
read, “We will pay the deductible amount for you to the claimant or provider of
services, but you must reimburse us within 30 days after we sent you notice that
payment is due.” Id. The court explained, “Under the clear language of the contract,
payment was not due until 30 days after [the insurer] sent notice to [the policyholder]
of the amount due. Accordingly, there could have been no suit under the contract until
notice was sent.” Id. That court held that the statute of limitations did not begin to run
on the insurer’s deductible reimbursement claim until demand had been made. Id.
Because on April 1, 2002, the Guaranty Associations had not yet made demand
for reimbursement of amounts they paid within the deductible limits of the Policy,
their causes of action for failure to reimburse deductibles did not accrue on that date.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 24
A cause of action for breach of contract did not accrue against the Guaranty
Associations on April 1, 2002, because as of that date: (1) their statutory obligations
had not been triggered in accordance with their respective enabling statutes, (2) the
Guaranty Associations had not yet paid the deductibles for which they filed suit in
this case, and (3) the Guaranty Associations had not yet made demand for
reimbursement of the deductible payments they had yet to make. None of these three
events occurred by April 1, 2002. Therefore, the District Court erred in granting
summary judgment to Hill Bros. on its limitations defense.
Issue 2: Is the Guaranty Associations’ compliance with the
Pennsylvania Act a mitigating circumstance making the
reasonableness of their alleged delay in making demand
or filing suit against Hill Bros. a fact question?
Yes. The Guaranty Associations’ compliance with the Pennsylvania Act is a
mitigating circumstance which requires the finder of fact to determine whether the
Guaranty Associations’ alleged delay in making demand or filing suit for
reimbursement was reasonable.
Demand for reimbursement of deductibles is a prerequisite to filing suit against
Hill Bros. for failure to reimburse the Guaranty Associations for the amounts they
have paid within the deductibles under the Policy. “Where demand is a prerequisite
to a right of action, the injured party must make the demand within a reasonable time
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 25
after it may lawfully be made.” Stevens v. State Farm Fire and Cas. Co., 929 S.W.2d
665, 671 (Tex. App.–Texarkana 1996) (internal citations omitted). “The
reasonableness of the delay is normally a fact question, but in the absence of
mitigating circumstances, the law will ordinarily consider a reasonable time as being
coincident with the running of the statute, and an action will be barred if a demand
is not made within that period.” Id. (internal citations omitted).
On June 28, 2004, after the Liquidation Order was entered and while the
delinquency proceeding was still open and pending, the Pennsylvania Legislature
passed into law S.B. No. 815, section 523.1, codified at 40 PA. CONS. STAT. §
221.23a (West 2004).10
In accordance with 40 PA. CONS. STAT. § 221.23a, the law governing the
delinquency proceeding, Legion in Liquidation was required to invoice and collect
from offshore insurer Mutual Indemnity the deductible payments the Guaranty
Associations made on Hill Bros.’ behalf in accordance with the Deductible
Reimbursement Policy Hill Bros. obtained for this purpose. See 40 PA. CONS. STAT.
§§ 221.23a(f) & (g) (2004). After collecting the deductibles, Legion in Liquidation
10
In accordance with its terms, Section 523.1 became immediately effective: “This act
shall take effect immediately.” 2004 Pa. Legis Serv. 2004-46 (S.B. 815). Section 221.23a(l) states,
“This section will apply to all delinquency proceedings which are open and pending as of the
effective date of this section.” S.B. 815 was approved on June 28, 2004. Because the delinquency
proceeding of Legion in Liquidation was open and pending on June 28, 2004, 40 PA. CONS. STAT.
§ 221.23a applies to the Legion in Liquidation delinquency proceeding.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 26
was then required to reimburse the Guaranty Associations for the deductible
payments they had made in accordance with the Policy. Id.
The Guaranty Associations were not permitted to initiate their own collection
efforts until Legion in Liquidation failed to make a good faith effort to collect
deductibles. See 40 PA. CONS. STAT. § 221.23a (g). Legion in Liquidation pursued
collection efforts through June 24, 2008, when it turned over collection of deductibles
to the Guaranty Associations.
Notably, in a different Pennsylvania delinquency proceeding, the Florida
Workers’ Compensation Insurance Guaranty Association filed a motion to intervene
to protect its right to deductible reimbursements in an action between the
Pennsylvania Liquidator and an insured employer. AMS Constr. Co., Inc. v. Reliance
Ins. Co., No. Civ.A. 04-CV-2097, 2004 WL 2600792 (E.D. Penn. Nov. 15, 2004).
Construing the statutory language of 40 PA. CONS. STAT. § 221.23a, the court
explained:
A review of the language of Pennsylvania’s statute establishes that a
scheme is in place whereby the Pennsylvania Commissioner, as receiver,
has the primary duty to collect unpaid deductible amounts under
Pennsylvania law . . . . This statutory scheme provides a mechanism for
the prompt payment of a guaranty association’s fair share of deductible
reimbursements. It further delineates the rights and remedies of the
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 27
guaranty association in pursuing its own claims should the receiver not
make a good faith effort to collect the reimbursements.11
Id. at *4. Under 40 PA. CONS. STAT. § 221.23a, the court concluded, “[T]he
Pennsylvania Commissioner, as receiver, has the statutory right and obligation to
represent all state guaranty associations in connection with deductible amounts owed
by policyholders.” AMS Constr., 2004 WL 2600792 at *5. Until the receiver failed
to meet this statutory obligation, under 40 PA. CONS. STAT. § 221.23a, the guaranty
associations were not permitted to collect deductibles. AMS Constr. 2004 WL
2600792 at *5.
In this case, the Legion Liquidator also had the primary duty to collect
deductibles from Hill Bros., and the Guaranty Associations were not permitted to
collect until the Liquidator failed to meet its statutory obligation. This occurred on
or after June 24, 2008, when Legion in Liquidation referred collection to the
Guaranty Associations.
The Guaranty Associations made their demand and filed their original petition
in March 2009, only nine months after collection efforts were turned over by Legion
11
Although referred to as “receiver” throughout the case, the court in AMS Constr.
recognized that the “Pennsylvania Commissioner of Insurance, was appointed statutory liquidator
of [the insurer].” AMS Constr., 2004 WL 2600792 at *1, n.1.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 28
in Liquidation in accordance with the Pennsylvania Act. Compliance with the
Pennsylvania Act is itself a mitigating circumstance which makes the reasonableness
of any alleged delay in making demand or filing suit against Hill Bros. a fact
question.
Because the reasonableness of the Guaranty Associations’ alleged delay in
filing suit is a fact question, the District Court erred in granting summary judgment
to Hill Bros.
Issue 3: Is the Policy a continuing contract that must be fully
performed before the Guaranty Associations’ causes of
action for breach of contract can accrue?
Yes. The Policy was a continuing contract which required the Guaranty
Associations to make ongoing and indivisible payments of workers’ compensation
benefits for the benefit of Hill Bros.’ injured employees. Because the Policy was not
fully performed until all workers’ compensation benefits were paid to Hill Bros.’
injured employees, the Guaranty Associations’ causes of action for failure to
reimburse deductibles did not accrue until that date.
A. The Policy is a Continuing Contract
A continuing contract is an agreement in which, “the contemplated
performance and payment are divided into several parts, or where the work is
continuous and indivisible, [and] the payment for work is in installments as the work
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 29
is completed.” Hubble v. Lone Star Contracting Corp., 883 S.W.2d 379, 381
(Tex.App.–Fort Worth 1994). The Policy is a continuing contract which required
continuous and indivisible payment of workers’ compensation benefits on an ongoing
basis by the Guaranty Associations and reimbursement by Hill Bros. to the Guaranty
Associations of amounts paid within the deductibles.
B. The Statute of Limitations Did Not Accrue on This Continuing Contract
Until it was Fully Performed on April 28, 2009.
The statute of limitations begins to run on a continuing contract on the earlier
of the following: “(1) when the work is completed; (2) when the contract is
terminated in accordance with its terms; or (3) when the contract is anticipatorily
repudiated by one party and this repudiation is adopted by the other party.” Id.
(internal citations omitted). See Dell Computer Corp. v. Rodriguez, 390 F.3d 377, 392
(5th Cir. 2004) (“On a continuing contract, however, the statute of limitations does
not commence to run until the contract is terminated or fully performed.”). A
workers’ compensation policy is not fully performed, and a breach of the deductible
endorsements cannot accrue, if benefits payments are ongoing under the contract. See
Canal, 648 S.E.2d 497, 498 (because the insurer’s payments under the Policy were
ongoing, and demand was made while benefit payments were being made, the
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 30
insurer’s cause of action to recover deductibles could not accrue until demand was
made).
Because the deductible endorsements of the Policy were never terminated by
any party, and because the Guaranty Associations did not adopt any anticipatory
repudiation by Hill Bros., the statute of limitations on the deductible endorsements
of the Policy accrued when the Guaranty Associations fully performed on the
contract.
The Guaranty Associations each fully performed on the contract when they
made their final payment of workers’ compensation benefits under the Policy. These
final payments occurred on April 24, 2007, for CIGA; on April 28, 2009, for
OPCIGA; and on February 19, 2007, for TPCIGA.12 Therefore, CIGA’s cause of
action accrued on August 24, 2007; OPCIGA’s cause of action accrued on April 28,
2009; and TPCIGA’s cause of action accrued on February 19, 2007. Because the
earliest of these accrual dates, February 19, 2007, is less than four years before the
date the Guaranty Associations filed suit on March 31, 2009, their claims for breach
of the continuing contract are not barred by limitations.
12
CIGA’s last payment was issued on April 24, 2007, CR 2977 (see $84 payment);
OPCIGA’s last payment was issued on April 28, 2009, CR 2890 (see $112.40 payment); and
TPCIGA’s last payment was issued on February 19, 2007. CR 2897 (see $3.78 payment).
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 31
The District Court erred in granting summary judgment to Hill Bros. because
the Policy was a continuing contract which required full performance before
limitations could run against the Guaranty Associations. Full performance under the
Policy did not occur until at least February 19, 2007, which was well within the four
year statute of limitations for breach of contract.
Issue 4: Are the Guaranty Associations’ causes of action for
failure to reimburse deductibles barred in whole when
some deductible payments were made within four years
from the date suit was filed?
No. Under no construction can the entirety of the Guaranty Associations’
claims be barred by limitations because each of the Guaranty Associations made
deductible payments on covered claims within four years of the date they filed suit,
or on or after March 31, 2005.
Where a contract requires ongoing payments on specific dates, a separate cause
of action accrues for each missed payment. F.D. Stella Products Co. v. Scott, 875
S.W.2d 462, 465 (Tex. App.–Austin 1994). The Court explained:
The cause of action accrues when each payment is due, and the injured
party has four years to bring suit. Thus, a suit for breach of contract
requiring payment in periodic installments may include all payments due
within the four-year statute of limitations period, even if the initial
breach was beyond the limitations period. Recovery of any payments
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 32
due before the four-year limit is barred, since a suit on each individual
payment more than four years overdue would also be barred.
Id. (Internal citations omitted).
In this case, although the deductible endorsements did not require payments by
Hill Bros. in fixed amounts on specified dates, the rationale of Scott is applicable. See
Spin Doctor Golf, Inc. v. Paymentech, L.P., 296 S.W.3d 354, 363 (Tex.App.–Dallas
2009) (holding that fixed payments are not required for a continuing contract). While
the statute of limitations may bar recovery for payments made four years before suit
was filed, it will not bar recovery for deductible payments made by the Guaranty
Associations within four years of the date the suit was filed. See id. (“We hold that
the parties’ agreement constituted a continuing contract and claims based on breaches
within four years before . . . the date the lawsuit was filed, are not barred by
limitations.”).
Each of the Guaranty Associations made payments under the Policy within four
years of the date they filed suit.13 Because the causes of action on such payments
cannot have accrued until the deductible payments are actually made, the Guaranty
Associations’ claims for reimbursement on these more recent payments are not barred
by the statute of limitations.
13
See supra note 8.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 33
The District Court erred in granting summary judgment to Hill Bros. because
the Guaranty Associations’ right to reimbursement for payments made within four
years of the date suit was filed are not barred by the statute of limitations.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 34
CONCLUSION AND PRAYER
As a matter of law, the statute of limitations did not begin to run against the
Guaranty Associations on April 1, 2002. As of that date, the Guaranty Associations
had no authority to sue Hill Bros., had not yet made the deductible payments for
which they sued Hill Bros., and had not yet made a demand for reimbursement to Hill
Bros. for the deductible payments they had yet to pay. To the extent the Guaranty
Associations are viewed as having delayed in demanding reimbursement, whether
their alleged delay was reasonable is a fact issue precluding summary judgment. In
fact, because the Policy was a continuing contract, the Guaranty Associations’ breach
of contract claims could not have accrued until they fully performed under the Policy,
and the earliest any of the Guaranty Associations fully performed under the Policy
was February 19, 2007. Alternatively, even if earlier payments were barred by the
statute of limitations, the statute of limitations would not bar the Guaranty
Associations’ recovery of deductible payments made within four years of the date the
Guaranty Associations filed suit.
For the reasons stated, the Guaranty Associations, Appellants, ask the Court
to reverse the District Court’s summary judgment and to remand the case for further
proceedings.
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 35
Respectfully submitted,
STONE LOUGHLIN & SWANSON, LLP
P.O. Box 30111
Austin, Texas 78755
(512) 343-1300
(512) 343-1385 Fax
dprice@slsaustin.com
By:
Dan Price (SBN 24041725)
James Loughlin (SBN 00795489)
Attorneys for Appellants
CERTIFICATE OF COMPLIANCE
Relying on the word count of the computer program used to prepare
Appellants’ Brief, the total number of words in this document, excluding sections that
are not to be counted under TEX. R. APP. P. 9.4(i)(1), is 7,498.
Dan Price
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 36
CERTIFICATE OF SERVICE
I hereby certify that on August 7, 2015, a true and correct copy of the foregoing
document served as indicated to the parties listed below.
Via e-Filing/e-Service
Adrian Ciechanowicz
William Johnson
Leila Melhem
DUGGINS WREN MANN & ROMERO, LLP
P.O. Box 1149
Austin, Texas 78767-1149
Telephone: (512) 744-9300
E-mail: aCiechanowicz@dwmrlaw.com
Dan Price
G:\SLS\21744\Appeal\Signature pages.wpd
APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 37
APPENDIX
Document Tab
TEX. INS. CODE. art. 21.28-C.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CAL. INS. CODE §§ 1063.1(c)(1), 1063.2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
36 OKLA. STAT. ANN. §§ 2004(6), 2004(8), 2007(A)(2). . . . . . . . . . . . . . . . . . . . . 3
The Policy WC1-1945251.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,
225 P.3d 1061, 1068 (Wyo. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
40 PA. CONS. STAT. § 221.23a.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2004 Pa. Legis. Serv. 2004-46 (S.B. No. 815). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Canal Ins. Co. v. Pro Search,
648 S.E.2d 497, 498 (Ga. Ct. App. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
AMS Constr. Co., Inc. v. Reliance Ins. Co.,
No. Civ.A. 04-CV-2097, 2004 WL 2600792 (E.D. Penn. Nov. 15, 2004). . . . . . . 9
Final Summary Judgment, dated March 6, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . 10
TAB 1
TEX. INS. CODE. art. 21.28-C
Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...
V.A.T.S. Insurance Code, Art. 21.28-C
VERNON'S TEXAS STATUTES AND CODES ANNOTATED
INSURANCE CODE (1951)
TITLE 1. THE INSURANCE CODE OF 1951
CHAPTER TWENTY-ONE—GENERAL PROVISIONS
SUBCHAPTER D. CONSOLIDATION, LIQUIDATION, REHABILITATION, REORGANIZATION OR
CONSERVATION OF INSURERS
Art. 21.28-C. Property and Casualty Insurance Guaranty Act
Short title
Sec. 1. This article shall be known as the Texas Property and Casualty Insurance Guaranty Act.
Purpose
Sec. 2. The purpose of this Act is to:
(1) provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment;
(2) avoid financial loss to claimants or policyholders because of the impairment of an insurer;
(3) assist in the detection and prevention of insurer insolvencies; and
(4) provide an association to assess the cost of that protection among insurers.
Scope
Sec. 3. (a) This Act applies to all kinds of direct insurance, and except as provided in Section 12 of this Act, is not applicable
to the following:
(1) life, annuity, health, or disability 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) title insurance;
(7) ocean marine insurance;
(8) any transaction or combination of transactions between a person, including an affiliate of such a person, and an insurer,
including an affiliate of such an insurer, that involves the transfer of investment or credit risk unaccompanied by the transfer of
insurance risk; or
(9) any insurance provided by or guaranteed by government.
(b) This Act applies to insurance written through the Texas Mutual Insurance Company only as provided by this subsection. The
application of this article to the Texas Mutual Insurance Company is on a prospective basis on and after January 1, 2000. That
company is only liable for assessments for a claim with a date of injury that occurs on or after January 1, 2000. The association,
with respect to an insolvency of the company, is only liable for a claim with a date of injury that occurs on or after January 1,
2000.
Construction
Sec. 4. This Act shall be liberally construed to effect the purposes under Section 2 of this Act, which will constitute an aid and
guide to interpretation.
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Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...
Definitions
Sec. 5. In this Act:
(1) “Account” means any one of the three accounts created under Section 6 of this Act.
(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 impaired insurer on December 31 of the year next preceding the date the insurer becomes an
impaired insurer.
(3) “Association” means the Texas Property and Casualty Insurance Guaranty Association.
(4) “Board” means the board of directors of the association.
(5) “Claimant” means any insured making a first-party claim or any person instituting a liability claim. A person who is an
affiliate of the impaired insurer may not be a claimant.
(6) “Commissioner” means the commissioner of insurance.
(7) “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 of 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 10 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.
(8) “Covered claim” means an unpaid claim of an insured or third-party liability claimant that arises out of and is within the
coverage and not in excess of the applicable limits of an insurance policy to which this Act applies, issued or assumed (whereby
an assumption certificate is issued to the insured) by an insurer licensed to do business in this state, if that insurer becomes an
impaired insurer and the third-party claimant or liability claimant or insured is a resident of this state at the time of the insured
event, or the claim is a first-party claim for damage to property that is permanently located in this state. “Covered claim” shall
also include unearned premiums, but in no event shall a covered claim for unearned premiums exceed $25,000. Individual covered
claims (including any and all derivative claims by more than one person which arise from the same occurrence, which shall be
considered collectively as a single claim under this Act) shall be limited to $300,000, except that the association shall pay the full
amount of any covered claim arising out of a workers' compensation claim made under a workers' compensation policy. “Covered
claim” shall not include any amount sought as a return of premium under a retrospective rating plan or any amount due any
reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries, reinsurance recoveries, contribution,
indemnification, or otherwise, and the insured of an impaired insurer is not liable, and the insurer is not entitled to sue or continue
a suit against that insured, for any subrogation recovery, reinsurance recovery, contribution, or indemnity asserted by a reinsurer,
insurer, insurance pool, or underwriting association to the extent of the applicable liability limits of the policy written and issued
to the insured by the insolvent insurer. “Covered claim” shall not include supplementary payment obligations, including adjustment
fees and expenses, attorney's fees and expenses, court costs, interest and penalties, and interest and bond premiums incurred prior
to the determination that an insurer is an impaired insurer under this Act. “Covered claim” shall not include any prejudgment or
postjudgment interest that accrues subsequent to the determination that an insurer is an impaired insurer under this Act. “Covered
claim” shall not include any claim for recovery of punitive, exemplary, extracontractual, or bad-faith damages, whether sought
as a recovery against the insured, insurer, guaranty association, receiver, special deputy receiver, or commissioner, awarded in
a court judgment against an insured or insurer. “Covered claim” shall not include, and the association shall not have any liability
to an insured or third-party liability claimant, for its failure to settle a liability claim within the limits of a covered claim under
this Act. With respect to a covered claim for unearned premiums, both persons who were residents of this state at the time the
policy was issued and persons who are residents of this state at the time the company is found to be an impaired insurer shall be
considered to have covered claims under this Act. If the impaired insurer has insufficient assets to pay the expenses of
administering the receivership or conservatorship estate, that portion of the expenses of administration incurred in the processing
and payment of claims against the estate shall also be a covered claim under this Act.
(9) “Impaired insurer” means:
(A) a member insurer that is placed in temporary or permanent receivership under an order of a court of competent jurisdiction,
including the courts of any other state, based on a finding of insolvency and that has been designated an impaired insurer by the
commissioner; or
(B) a member insurer placed in conservatorship after it has been determined by the commissioner to be insolvent and that has
been designated an impaired insurer by the commissioner.
(10) “Member insurer” means any insurer who:
(A) writes any kind of insurance to which this Act applies under Section 3 of this Act, including the exchange of reciprocal or
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Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...
inter-insurance contracts; and
(B) is licensed to transact insurance in this state, including any stock, mutual, Lloyds insurer, reciprocal or inter-insurance
exchange, or county mutual insurance company.
(11) “Net direct written premiums”, when assessing other than the workers' compensation line of business, means direct premiums
written in this state on insurance policies to which this Act applies, less return premiums on those policies and dividends paid or
credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers.
When assessing the workers' compensation line of business, the term “net direct written premiums” includes the modified annual
premium prior to the application of any deductible premium credit, less return premiums on those policies and dividends paid or
credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers.
(12) “Person” means any individual, corporation, partnership, association, or voluntary organization.
Association
Sec. 6. The Texas Property and Casualty Insurance Guaranty Association is a nonprofit, unincorporated legal entity composed
of all member insurers, who must be 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 approved under Section 9 of this Act and shall exercise its
powers through the board of directors. For purposes of administration and assessment, the association is divided into the workers'
compensation insurance account, the automobile insurance account, and the account for all other lines of insurance to which this
Act applies.
Board of directors
Sec. 7. (a) The board of directors of the association is composed of nine persons who serve terms as established in the plan of
operation. Five members shall be selected by member insurers, subject to the approval of the commissioner. To be eligible to serve
as an insurance industry board member, a person must be a full-time employee of a member insurer. The remaining members shall
be representatives of the general public appointed by the commissioner. Vacancies on the board shall be filled for the remaining
period of the term by a majority vote of the remaining board members, subject to the approval of the commissioner.
(b) In approving selections to the board, the commissioner shall consider whether all member insurers are fairly represented.
(c) Members of the board of directors may be reimbursed from the assets of the association for expenses incurred by them as
members of the board of directors.
(d) A public representative may not be:
(1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other
business entity regulated by the Texas Department of Insurance;
(2) a person required to register with the Texas Ethics Commission under Chapter 305, Government Code, in connection with
the person's representation of clients in the field of insurance; or
(3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.
(e) Each member of the board of directors shall file a financial statement with the secretary of state in accordance with Sections
3 and 4, Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-9b, Vernon's Texas Civil Statutes).
(f) A director of the association or any member company or other entity represented by the director may not receive any money
or valuable thing directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit for
negotiating, procuring, participating, recommending, or aiding in a transaction, reinsurance agreement, merger, purchase, sale,
or exchange of assets, policies of insurance, or property made by the association or the supervisor, conservator, or receiver on
behalf of an impaired insurer. The director, company, or entity may not be pecuniarily or contractually interested, as principal,
co-principal, agent, or beneficiary, directly, indirectly, or through any substantial interest in any other corporation, firm, or
business unit, in the transaction, reinsurance agreement, merger, purchase, sale, or exchange.
Powers and duties of association
Sec. 8. (a) The association shall pay covered claims that exist before the designation of impairment or that arise within 30 days
after the date of the designation of impairment, before the policy expiration date if the policy expiration date is within 30 days
after the date of the designation of impairment, or before the insured replaces the policy or causes its cancellation if the insured
does so within 30 days after the date of the designation. The obligation is satisfied by paying to the claimant the full amount of
a covered claim for benefits.
(b) The association shall undertake to discharge the policy obligations of the impaired insurer, including the duty to defend
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Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...
insureds under a liability policy, to the extent that the policy obligations are covered claims under this Act. In performing its
statutory obligations, the association may also enforce any duty imposed on the insured party or beneficiary under the terms of
any policy of insurance within the scope of this Act. In performing its statutory obligations under this Act, the association shall
not be considered to be in the business of insurance, shall not be considered to have assumed or succeeded to any liabilities of
the impaired insurer, and shall not be considered to otherwise stand in the shoes of the impaired insurer for any purpose, including
the issue of whether the association is amenable to the personal jurisdiction of the courts of any other state.
(c) The association shall assess insurers amounts necessary to pay the obligations of the association under Subsection (a) of this
section after an insolvency, the expenses of handling covered claims subsequent to an insolvency, and other expenses authorized
by this Act. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member
insurer for the calendar year preceding the assessment bears to the net direct written premiums of all member insurers for the
calendar year preceding the assessment. Each member insurer shall be notified of the assessment not later than the 30th day before
the date on which the assessment is due. A member insurer may not be assessed in any year an amount greater than two percent
of that member insurer's net direct written premiums for the calendar year preceding the assessment. If the maximum assessment,
with the other assets of the association, does not provide in any one year an amount sufficient to make all necessary payments,
the funds available shall be prorated, and the unpaid portion shall be paid as soon thereafter as funds become available. The
association shall pay claims in any order it considers reasonable, including the payment of claims as they are received from the
claimants or in groups or categories of claims. The association may defer, in whole or in part, the assessment of any member
insurer if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than
the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to
transact insurance; provided, however, that during the period of deferment, dividends may not be paid to shareholders or
policyholders. Deferred assessments shall be paid when the payment will not reduce capital or surplus below required minimums.
The payments shall be refunded to those companies receiving larger assessments by virtue of the deferment, or at the election of
such a company, credited against future assessments.
(d) The association shall investigate and adjust, compromise, settle, and pay covered claims to the extent of the association's
obligation and deny all other claims. The association may review settlements, releases, and judgments to which the impaired
insurer or its insureds were parties to determine the extent to which those settlements, releases, and judgments may be properly
contested. Any judgment taken by default or consent against an insured or the impaired insurer, and any settlement, release, or
judgment entered into by the insured or the impaired insurer, is not binding on the association, and may not be considered as
evidence of liability or of damages in connection with any claim brought against the association or any other party under this Act.
Notwithstanding any other provision of this Act, a covered claim shall not include any claim filed with the guaranty association
after the later of the final date for filing claims against the liquidator or receiver of an insolvent insurer or eighteen months after
the order of liquidation.
(e) The association shall give notice as the commissioner directs under Section 10(c) of this Act.
(f) The association 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 approval of the commissioner, but such a designation may
be declined by a member insurer.
(g) The association shall reimburse each servicing facility for obligations of the association paid by the facility and for expenses
incurred by the facility while handling claims on behalf of the association and shall pay the other expenses of the association
authorized by this Act.
(h) The association may:
(1) employ or retain persons as necessary to handle claims and perform other duties of the association;
(2) borrow funds necessary to implement this Act in accordance with the plan of operation;
(3) sue or be sued;
(4) negotiate and become a party to contracts as necessary to implement this Act, including lump-sum or structured compromise
and settlement agreements with claimants who have claims for medical or indemnity benefits for a period of three years or more
other than a settlement or lump-sum payment in violation of the Texas Workers' Compensation Act (Article 8308-1.01 et seq.,
Vernon's Texas Civil Statutes);
(5) perform other acts as necessary or proper to implement this Act; or
(6) refund to the member insurers in proportion to the contribution of each member insurer to the association that amount by
which the assets of the association exceed the liabilities, if at the end of any calendar year the board of directors finds that the
assets of the association exceed the liabilities of the association as estimated by the board of directors for the coming year.
(i) Repealed by Acts 1993, 73rd Leg., ch. 685, § 9.10, eff. Sept. 1, 1993.
(j) The board of directors may deposit all money collected by the association into the Texas Treasury Safekeeping Trust
Company in accordance with procedures established by the comptroller. The funds deposited shall be accounted for separately
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from all other funds by the comptroller to the association.
(k)(1) Notwithstanding Chapter 271, Acts of the 60th Legislature, Regular Session, 1967 (Article 6252-17, Vernon's Texas Civil
Statutes), [FN1] the board may hold an open meeting by telephone conference call if immediate action is required and the
convening at one location of a quorum of the board is not reasonable or practical.
(2) The meeting is subject to the notice requirements applicable to other meetings.
(3) The notice of the meeting must specify as the location of the meeting the location where meetings of the board are usually
held.
(4) Each part of the meeting that is required to be open to the public shall be audible to the public at the location specified in the
notice of the meeting as the location of the meeting and shall be tape recorded. The tape recording shall be made available to the
public.
Plan of operation
Sec. 9. (a) The association shall submit to the commissioner a plan of operation and any amendments necessary or suitable to
ensure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments take effect
on approval in writing by the commissioner.
(b) If the association fails to submit suitable amendments to the plan, the commissioner, after notice and hearing, shall adopt
reasonable rules as necessary or advisable to implement this Act. Those rules shall continue in force until modified by the
commissioner or superseded by a plan submitted by the association and approved by the commissioner.
(c) All member insurers shall comply with the plan of operation.
(d) The plan of operation must:
(1) establish the procedures under which the powers and duties of the association are performed;
(2) establish procedures for handling assets of the association;
(3) establish the amount and method of reimbursing members of the board of directors;
(4) provide for the establishment of a claims filing procedure that includes, but is not limited to, notice by the association to
claimants, procedures for filing claims seeking recovery from the association, and a procedure for appealing the denial of claims
by the association; and
(5) establish acceptable forms of proof of covered claims.
(e) A list of claims shall be submitted periodically to the association or similar organization in another state by the receiver.
(f) The plan of operation must:
(1) establish regular places and times for meetings of the board of directors;
(2) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of
directors;
(3) provide that any member insurer aggrieved by any final action or decision of the association may appeal to the commissioner
not later than the 30th day after the date of the action or decision;
(4) establish the procedures under which selections for the board of directors are submitted to the commissioner; and
(5) contain additional provisions as necessary or proper for the execution of the powers and duties of the association.
(g) The plan of operation may provide that any or all powers and duties of the association, except those under Section 8(c) and
8(h)(2) of this Act, are delegated by contract to a corporation, association, or other organization that performs or will perform
functions similar to those of the association or its equivalent in two or more states. The corporation, association, or organization
shall be reimbursed as a servicing facility would be reimbursed and shall be paid for the performance of any other functions of
the association. A delegation under this subsection takes effect only with the approval of both the board of directors and the
commissioner and may be made only to a corporation, association, or organization that extends protection not substantially less
favorable and effective than that provided by this Act. A contract entered into under this subsection is subject to the performance
standards imposed under Section 2(a), Article 21.28, of this code.
Duties and powers of commissioner
Sec. 10. (a) The commissioner shall notify the association of the existence of an impaired insurer not later than three days after
the commissioner gives notice of the designation of impairment. The association is entitled to a copy of any complaint seeking
an order of receivership with a finding of insolvency against a member company at the same time that the complaint is filed with
a court of competent jurisdiction.
(b) On request of the board of directors, the commissioner shall provide the association with a statement of the net direct written
premiums of each member insurer.
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(c) The commissioner may require that the association notify the insureds of the impaired insurer and any other interested parties
of the designation of impairment and of their rights under this Act. The notification shall be by mail at the last known address,
if available, but if sufficient information for notification by mail is not available, notice by publication in a newspaper of general
circulation is sufficient.
(d) The commissioner shall suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this
state of any member insurer that fails to pay an assessment when due or otherwise fails to comply with the plan of operation. As
an alternative, the commissioner may assess a fine on any member insurer that fails to pay an assessment when due. The fine may
not exceed the lesser of five percent of the unpaid assessment per month or $100 per month.
(e) The commissioner may revoke the designation of any servicing facility if the commissioner finds that claims are being handled
unsatisfactorily.
(f) Any final action or order of the commissioner under this Act is subject to judicial review by a court of competent jurisdiction.
(g) Venue in a suit against the association or commissioner relating to any action or ruling of the association or commissioner
made under this Act is in Travis County. The association or commissioner is not required to give an appeal bond in an appeal of
a cause of action arising under this Act.
Effect of paid claims
Sec. 11. (a) A person recovering under this Act is considered to have assigned to the association the person's right under the
policy, and the person's rights to recover for the occurrence made the basis of the claim under this Act under any policy of
insurance issued by an unimpaired insurer to the extent of the person's recovery from the association. The association may pursue
any such claims to which it is subrogated under this provision in its own name or in the name of the person recovering under this
Act. Each insured or claimant seeking the protection of this Act shall cooperate with the association to the same extent as that
person would have been required to cooperate with the impaired insurer. The association does not have a cause of action against
the insured of the impaired insurer for any sums it has paid out except those causes of action the impaired insurer would have had
if the sums had been paid by the impaired insurer and except as provided in Subsection (b) of this section. In the case of an
impaired insurer operating on a plan with assessment liability, payments of claims of the association do not reduce the liability
of the insureds to the receiver or statutory successor for unpaid assessments.
(b) The association is entitled to recover from the following persons the amount of any covered claim paid on behalf of that
person under this Act:
(1) any insured, other than an insured who is exempt from federal income tax under Section 501(a) of the Internal Revenue Code
of 1986 (26 U.S.C. Section 501(a)) by being described by Section 501(c)(3) of that code, whose net worth on December 31 of
the year next preceding the date the insurer becomes an impaired insurer exceeds $50 million and whose liability obligations to
other persons under a policy or contract of insurance written, issued, and placed in force after January 1, 1992, are satisfied in
whole or in part by payments made under this Act; and
(2) any person who is an affiliate of the impaired insurer and whose liability obligations to other persons are satisfied in whole
or in part by payments made under this Act.
(c) The receiver or statutory successor of an impaired insurer is bound by settlements of covered claims by the association or
a similar organization in another state. The court having jurisdiction shall grant those claims priority equal to that which the
claimant would have been entitled to in the absence of this Act against the assets of the impaired insurer. The expenses of the
association or similar organization in handling claims shall be accorded the same priority as the receiver's expenses.
(d) The association shall file periodically with the receiver of the impaired insurer statements of the covered claims paid by the
association and estimates of anticipated claims on the association that shall preserve the rights of the association against the assets
of the impaired insurer.
Nonduplication of recovery
Sec. 12. (a) A person who has a claim against an insurer under any provision in an insurance policy other than a policy of an
impaired insurer that is also a covered claim shall exhaust first the person's rights under the policy, including any claim for
indemnity or medical benefits under any workers' compensation, health, disability, uninsured motorist, personal injury protection,
medical payment, liability, or other policy, and the right to defense under the policy. The association shall have a credit or setoff
against any amount of benefits which would otherwise be payable by the association to the claimant under this Act, in the amount
of the claimant's recovery under any policy issued by an unimpaired insurer. Subject to the provisions of Subsection (a-1) below,
the association's credit or setoff under this section shall be deducted from damages incurred by the claimant, and the remaining
sum shall be the maximum amount payable by the association, except that the association's liability shall not exceed $100,000
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or the limits of the policy under which the claim is made, whichever is less.
(a-1) Notwithstanding Subsection (a) of this section, if a claimant is seeking recovery of policy benefits that, but for the
insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or
any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by
the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery
under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency
of the impaired insurer. Subject to Section 5(8) of this Act, a claimant's recovery under this Act may not result in a recovery to
the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.
(b) A person who has a claim that may be recovered under more than one insurance guaranty association or its equivalent shall
seek recovery first from the association of the place of residence of the insured, except that if it is a first-party claim for damage
to property with a permanent location, the person shall seek recovery first from the association of the location of the property, and
if it is a workers' compensation claim the person shall seek recovery first from the association of the residence of the claimant.
The association shall have a credit or setoff against any amount of benefits under this Act, in the amount of the claimant's recovery
from the guaranty association or equivalent. Subject to the provisions of Subsection (b-1) below, the association's credit or setoff
under this Section shall be deducted from the damages incurred by the claimant, and the remaining sum shall be the maximum
amount payable by the association, except that the association's liability shall not exceed $100,000.
(b-1) Notwithstanding Subsection (b) of this section, if a claimant is seeking recovery of policy benefits that, but for the
insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or
any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by
the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery
under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency
of the impaired insurer. Subject to Section 5(8) of this Act, a claimant's recovery under this Act shall not result in a recovery to
the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.
Financial condition of member insurers; prevention of insolvencies
Sec. 13. (a) The association shall have access to the books and records of a member insurer in receivership, in order to make a
determination of the extent of the impact on the association in the event such member becomes impaired. The association shall
have the authority to perform or cause to be performed an actuarial and operational analysis of the member insurer and prepare
a report on matters relating to the impact or potential impact on the association in the event of impairment. Such reports shall not
be public documents.
(b) At the conclusion of any domestic insurer insolvency in which the association was obligated to pay covered claims, the board
of directors may prepare a report on the history and causes of the insolvency, based on the information available to the association,
and may submit the report to the commissioner.
(c) There shall be no liability on the part of, and no cause of action of any nature shall arise against the association or its agents
or employees, the board of directors, member insurers, or the commissioner or the commissioner's authorized representative for
any statement made in good faith by them in any report or recommendation made under this section.
Examination of the association
Sec. 14. Not later than April 30 of each year, the association shall submit an audited financial statement to the state auditor for
the preceding calendar year in a form approved by the state auditor's office.
Tax exemption
Sec. 15. The association is exempt from payment of all fees and all taxes levied by this state or any of its subdivisions except
taxes levied on real or personal property.
Immunity; attorney general representation
Sec. 16. (a) There is no liability on the part of, and no cause of action of any nature arises against, any member insurer, the
association or its agents or employees, the board of directors, receiver, special deputy receiver or its agents or employees, or the
commissioner or the commissioner's representatives for any good faith action or failure to act in the performance of powers and
duties under this Act.
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(b) The attorney general shall defend any action to which Subsection (a) applies that is brought against a member insurer or its
agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy
receiver to its agents or employees, or the commissioner or the commissioner's representatives. This subsection continues to apply
to an action instituted after the defendant's service with the guaranty association, commissioner, or department has terminated.
This subsection does not require the attorney general to defend any person or entity with respect to an issue other than the
applicability or effect of the immunity created by Subsection (a). The attorney general is not required to defend any member
insurer of the association or its agents or employees, the association or its agents or employees, members of the association's board
of directors, a special deputy receiver or its agents or employees with respect to any actions filed regarding the disposition of a
claim filed with the guaranty association under this Act or to an issue other than the applicability or effect of the immunity created
by Subsection (a). The association may contract with the attorney general under the Interagency Cooperation Act (Article
4413(32), Vernon's Texas Civil Statutes) to provide legal services not covered under this subsection.
Stay of proceedings
Sec. 17. All proceedings in which an impaired insurer is a party or is obligated to defend a party in any court in this state, except
proceedings directly related to the receivership or instituted by the receiver, shall be stayed for six months and any additional time
thereafter as may be determined by the court from the date of the designation of impairment or an ancillary proceeding is instituted
in the state, whichever is later, to permit proper defense by the receiver or the association of all pending causes of action. A
deadline imposed under the Texas Rules of Civil Procedure or the Texas Rules of Appellate Procedure is tolled during the stay.
The court in which the delinquency proceeding is pending has exclusive jurisdiction regarding the application, enforcement, and
extension of the stay. As to any covered claims arising from a judgment under any decision, verdict, or finding based on the default
of the impaired insurer or its failure to defend an insured, the association either on its own behalf or on behalf of the insured shall
be entitled, upon application, to have the judgment, order, decision, verdict, or finding set aside by the same court or administrator
that made the judgment, order, decision, verdict, or finding and shall be permitted to defend the claim on the merits. The receiver
or statutory successor of an impaired insurer covered by this Act shall permit access by the board or its authorized representative
to records of the impaired insurer as are necessary for the board in carrying out its functions under this Act with regard to covered
claims. In addition, the receiver or statutory successor shall provide the board or its representative with copies of the records on
request of the board and at the expense of the board.
Assessments
Sec. 18. (a) If the commissioner determines that an insurer has become an impaired insurer, the association shall promptly
estimate the amount of additional funds, by lines of business, needed to supplement the assets of the impaired insurer immediately
available to pay covered claims. The board shall make additional funds available as the actual need arises for each impaired
insurer.
(b) If the board of directors determines that additional funds are needed in any of the three accounts, it shall make assessments
as necessary to produce the necessary funds. The association, in determining the proportionate amount to be paid by individual
insurers under an assessment, shall take into consideration the lines of business written by the impaired insurer and shall assess
individual insurers in proportion to the ratio that the total net direct written premium collected in this state by the insurer for those
lines of business bears to the total net direct written premium collected by all insurers, other than impaired insurers, in this state
for those lines of business. The association shall determine the total net direct written premium of an individual insurer and for
all insurers in the state from the insurers' annual statements for the year preceding assessment. Except as otherwise provided by
this subsection, assessments under this subsection during a calendar year may be made up to, but not in excess of, two percent
of each insurer's net direct written premium for the preceding calendar year in the lines of business for which the assessments are
being made. In the event of a natural disaster or other catastrophic event, the association may apply to the governor, in the manner
prescribed by the plan of operation, for authority to assess each member insurer that writes insurance coverage, other than motor
vehicle coverage or workers' compensation coverage, an additional amount not to exceed two percent of the insurer's net direct
written premiums for the preceding calendar year. If the maximum assessment in any calendar year does not provide an amount
sufficient for payment of covered claims of impaired insurers, assessments may be made in the next and successive calendar years.
(c) It shall be the duty of each insurer to pay the amount of an assessment under Subsection (b) of this section to the association
not later than the 30th day after the association gives notice of the assessment.
(d) Assessments may be collected on behalf of the association by the commissioner through suits brought for that purpose. Venue
for those suits is in Travis County. Either party to the action may appeal to the appellate court having jurisdiction over the cause,
the appeal shall be at once returnable to the appellate court having jurisdiction over the cause, and the action so appealed shall
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have precedence in the appellate court over all causes of a different character pending before the court. The commissioner is not
required to give an appeal bond in any cause arising under this subsection.
(e) An insurer designated as an impaired insurer by the commissioner is exempt from assessment from and after the date of the
designation and until the commissioner determines that the insurer is no longer an impaired insurer.
(f) Funds advanced by the association under this Act shall not become assets of the impaired insurer but are considered a special
fund loaned to the impaired insurer for payment of covered claims. That loan is repayable to the extent available from the funds
of the insurer.
(g) Income from the investment of any of the funds of the association may be transferred to the administrative account authorized
under this Act. The funds in the account may be used by the association for the purpose of meeting administrative costs and other
general expenses of the association. On notification by the association of the amount of any additional funds needed for the
administrative account, the association shall assess member insurers to obtain the needed funds in the manner set out in this
section. The commissioner shall consider the net direct written premium collected in this state for all lines of business covered
by this Act. An assessment for administrative expenses incurred by a supervisor or conservator appointed by the commissioner
or a receiver appointed by a court of competent jurisdiction for a nonmember of the association or unauthorized insurer operating
in this state may not exceed $1,000,000 each calendar year.
(h) Expired.
Purpose of assessment
Sec. 19. (a) The amounts provided under assessments made under this Act are in addition to the marshaling of assets by the
receiver under Article 21.28 of this code for the purpose of making payments on behalf of an impaired insurer.
(b) This section does not require the receiver to exhaust the assets of the impaired insurer before an assessment is made or before
funds derived from an assessment may be used to pay covered claims.
Accounting for and repayment of assessments
Sec. 20. (a) On receipt from an insurer of payment of an assessment or partial assessment required by the association under
Section 18(b) of this Act, the association shall provide the insurer with a participation receipt, which shall create a liability against
the account for the line or lines of business for which the assessment was made.
(b) The account from which an advance is made to an impaired insurer for the payment of covered claims shall be regarded as
a general creditor of the impaired insurer for the amount of funds so advanced; provided, however, that with reference to the
remaining balance of any advances not expended in payment of covered claims, the claim of the account has preference over other
general creditors. The association of any impaired insurer shall adopt accounting procedures reflecting the expenditure and use
of all funds and shall make a final report of the expenditure and use of the funds to the commissioner, which final report shall set
forth the remaining balance, if any, from the moneys advanced. The association shall also make any interim reports concerning
such accounting as may be required by the commissioner or requested by the conservator. On completion of the final report, the
association shall, as soon thereafter as is practicable, refund by line of business the remaining balance of those advances to the
accounts maintained by the association.
(c) If the association at any time determines that there exist moneys in the account for any line of business in excess of those
reasonably necessary for efficient future operation under the terms of this Act, it shall cause those excess moneys to be returned
pro rata to the holders of any participation receipts on which there is a balance outstanding after deducting any credits taken
against premium taxes as authorized in Section 21 of this Act, which receipts were issued for an assessment on the same line of
business as that for which the excess moneys are found to exist. If after such a distribution the association finds that an excess
amount still exists in the fund, or if there are no such participation receipts on which there is an outstanding balance, it shall cause
the excess amount to be deposited with the comptroller to the credit of the general revenue fund.
Recognition of assessments in premium tax offset; assignment of credit
Sec. 21. (a) One hundred percent of any assessment paid by an insurer under this Act shall be allowed to that insurer as a credit
against its premium tax under Article 4.10 of this code. The tax credit referred to in this section shall be allowed at a rate of 10
percent per year for 10 successive years following the date of assessment and, at the option of the insurer, may be taken over an
additional number of years. The balance of any tax credit not claimed in a particular year may be reflected in the books and records
of the insurer as an admitted asset of the insurer for all purposes, including exhibition in annual statements under Article 6.12 of
this code.
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(b) Available credit against premium tax allowed under Subsection (a) of this section may be transferred or assigned among or
between insurers if:
(1) a merger, acquisition, or total assumption of reinsurance among or between the insurers occurs; or
(2) the commissioner by order approves the transfer or assignment.
Release from receivership
Sec. 22. An impaired insurer placed in receivership for which advances have been made under this Act may not be authorized,
on release from receivership, to issue new or renewal insurance policies until the impaired insurer has repaid in full to the
association the funds advanced by it. However, the commissioner may, on application of the association and after hearing, permit
the issuance of new policies in accordance with a plan of operations by the released insurer for repayment of advances. The
commissioner, in approving the plan, may place restrictions on the issuance of new or renewal policies as the commissioner
considers necessary to the implementation of the plan.
Rules and regulations
Sec. 23. The State Board of Insurance is authorized and directed to issue such reasonable rules and regulations as may be
necessary to carry out the various purposes and provisions of this article, and in augmentation thereof.
Sec. 24. Blank.
Controlling law
Sec. 25. (a) Except as provided in Subsection (b) of this section, if a conflict exists between this Act and any other statutory
provision relating to the association, this Act shall control.
(b) This section does not apply to a conflict between this Act and:
(1) the Texas Workers' Compensation Act (Article 8308-1.01, et seq., Vernon's Texas Civil Statutes);
(2) Subchapter D, Chapter 5, of this code; [FN2] or
(3) Article 5.76-2, 5.76-3, 5.76-4, or 5.76-5 of this code.
Coverage for Workers' Compensation Insurance Policies Issued by Texas Workers' Compensation Insurance Facility
Sec. 26. (a) Notwithstanding any other provision of this article, this article applies to each policy of insurance issued under
Article 5.76 of this code or Article 5.76-2 of this code, as that article existed before its repeal.
(b) Notwithstanding any other provision of this article, after the conversion of the Texas workers' compensation insurance facility
to a stock insurance company, that converted facility shall be considered an impaired insurer for purposes of this article if any of
the actions described by Section 5(9)(A) or (B) of this article occur to the converted facility.
(c) A claim under such an insurance policy is a covered claim for purposes of this article if the claim satisfies the definition under
Section 5(8) of this article, whether or not the converted facility:
(1) issued or assumed the policy; or
(2) was licensed to do business in this state at the time:
(A) the policy was written; or
(B) the converted facility became an impaired insurer.
(d) If a conflict exists between this section and any other statute relating to the Texas workers' compensation insurance facility
or the Texas Property and Casualty Insurance Guaranty Association, this section controls.
Immunity
Sec. 27. There is no liability on the part of, and a cause of action does not arise against, any member insurer of the association,
the association, an agent or employee of the association, a member of the board of directors of the association, or the commissioner
or the commissioner's representative for any act or omission in the performance of any activity related to the negotiations relating
to the privatization of the Texas workers' compensation insurance facility. This section applies to each activity undertaken by such
a person or entity, regardless of the date of the act or omission.
CREDIT(S)
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TAB 2
CAL. INS. CODE §§ 1063.1(c)(1), 1063.2(b)
Page 1
West's Ann.Cal.Ins.Code § 1063
WEST'S ANNOTATED CALIFORNIA CODES
INSURANCE CODE
DIVISION 1. GENERAL RULES GOVERNING INSURANCE
PART 2. THE BUSINESS OF INSURANCE
CHAPTER 1. GENERAL REGULATIONS
ARTICLE 14.2. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION
Copr. (C) West Group 2002. All rights reserved.
§ 1063. Establishment of the California Insurance Guarantee Association; powers and duties; audit and exam-
ination
(a) Within 60 days after the original effective date of this article, all insurers, including reciprocal insurers, ad-
mitted to transact insurance in this state of any or all of the following classes only in accordance with the provi-
sions of Chapter 1 (commencing with Section 100) of Part 1 of this division: fire (see Section 102), marine (see
Section 103), plate glass (see Section 107), liability (see Section 108), workers' compensation (see Section 109),
common carrier liability (see Section 110), boiler and machinery (see Section 111), burglary (see Section 112),
sprinkler (see Section 114), team and vehicle (see Section 115), automobile (see Section 116), aircraft (see Sec-
tion 118), and miscellaneous (see Section 120), shall establish the California Insurance Guarantee Association
(the association); provided, however, this article shall not apply to the following classes or kinds of insurance:
life and annuity (see Section 101), title (see Section 104), fidelity or surety including fidelity or surety bonds, or
any other bonding obligations (see Section 105), disability or health (see Section 106), credit (see Section 113),
mortgage (see Section 117), mortgage guaranty, insolvency or legal (see Section 119), financial guaranty or oth-
er forms of insurance offering protection against investment risks (see Section 124), the ocean marine portion of
any marine insurance or ocean marine coverage under any insurance policy including the following: the Jones
Act (46 U.S.C. Sec. 688), the Longshore and Harbor Workers' Compensation Act (33 U.S.C. Sec. 901 et seq.),
or any other similar federal statutory enactment, or any endorsement or policy affording protection and indem-
nity coverage, or reinsurance as defined in Section 620, or fraternal fire insurance written by associations organ-
ized and operating under Sections 9080 to 9103, inclusive. Any insurer admitted to transact only those classes or
kinds of insurance excluded from this article shall not be a member insurer of the association. Each such insurer,
including the State Compensation Insurance Fund, as a condition of its authority to transact insurance in this
state, shall participate in the association whether established voluntarily or by order of the commissioner after
the elapse of 60 days following the original effective date of this article in accordance with rules to be estab-
lished as provided in this article. It shall be the purpose of the association to provide for each member insurer in-
solvency insurance as defined in Section 119.5.
(b) The association shall be managed by a board of governors, composed of nine member insurers, each of
which shall be appointed by the commissioner to serve initially for terms of one, two, or three years and there-
after for three-year terms so that three terms shall expire each year on December 31, and shall continue in office
until his or her successor shall be appointed and qualified. At least five members of the board shall be domestic
insurers. At least three such members shall be stock insurers, and at least three shall be nonstock insurers. The
nine members shall be representative, as nearly as possible, of the classes of insurance and of the kinds of in-
surers covered by this article. In case of a vacancy for any reason on the board, the commissioner shall appoint a
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
member insurer to fill the unexpired term.
(c) The association shall adopt a plan of operations, and any amendments thereto, not inconsistent with the pro-
visions of this article, necessary to assure the fair, reasonable, and equitable manner of administering the associ-
ation, and to provide for other matters as are necessary or advisable to implement the provisions of this article.
The plan of operations and any amendments thereto shall be subject to prior written approval by the commis-
sioner. All members of the association shall adhere to the plan of operation.
(d) If for any reason the association fails to adopt a suitable plan of operation within 90 days following the ori-
ginal effective date of this article, or if at any time thereafter the association fails to adopt suitable amendments
to the plan of operation, the commissioner shall after hearing adopt and promulgate reasonable rules as are ne-
cessary or advisable to effectuate the provisions of this chapter. These rules shall continue in force until modi-
fied by the commissioner after hearing or superseded by a plan of operation, adopted by the association and ap-
proved by the commissioner.
(e) In accordance with its plan of operation, the association may designate one or more of its members as a ser-
vicing facility, but a member may decline this designation. Each servicing facility shall be reimbursed by the as-
sociation for all reasonable expenses it incurs and for all payments it makes on behalf of the association. Each
servicing facility shall have authority to perform any functions of the association that the board of governors
lawfully may delegate to it and to do so on behalf of and in the name of the association. The designation of ser-
vicing facilities shall be subject to the approval of the commissioner.
(f) The association shall have authority to borrow funds when necessary to effectuate the provisions of this art-
icle.
(g) The association, either in its own name or through servicing facilities, may be sued and may use the courts to
assert or defend any rights the association may have by virtue of this article as reasonably necessary to fully ef-
fectuate the provisions thereof.
(h) The association shall have the right to intervene as a party in any proceeding instituted pursuant to Section
1016 wherein liquidation of a member insurer as defined in Section 1063.1 is sought.
(i)(1) The association shall have an annual audit of its financial condition conducted by an independent certified
public accountant. The audit shall be conducted, to the extent possible, in accordance with generally accepted
auditing standards (GAAS) and the report of the audit shall be submitted to the commissioner.
(2) The association shall annually audit at least one-third of the service companies retained by the association to
adjust claims of insolvent insurers. The audits shall (A) assure that all covered claims are being investigated, ad-
justed, and paid in accordance with customary industry standards and practices and all applicable statutes, rules
and regulations, and (B) examine the management and supervisory systems overseeing the claims functions. The
audits shall be conducted by the association or an independent auditor, provided that the three largest service
companies, as measured by the number of claims processed for the association during the previous three fiscal
years, shall be audited by an independent auditor at least once every three years. The Association shall imple-
ment systems to retain independent auditing firms for the purpose of this paragraph, provided that no one firm is
designated or utilized as an exclusive provider. Audits conducted pursuant to this paragraph shall be submitted
annually to the commissioner for review.
(j) The commissioner shall examine the association to the same extent as, and in accordance with, the require-
ments of Article 4 (commencing with Section 730) of Chapter 1 of Part 2 of Division 2, which sets forth the ex-
amination requirements applicable to admitted insurers. A copy of the examination report shall be filed with the
Chairpersons of the Senate and Assembly Committees on Insurance no later than December 31 of the year the
report is completed.
CREDIT(S)
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 1
West's Ann.Cal.Ins.Code § 1063.1
WEST'S ANNOTATED CALIFORNIA CODES
INSURANCE CODE
DIVISION 1. GENERAL RULES GOVERNING INSURANCE
PART 2. THE BUSINESS OF INSURANCE
CHAPTER 1. GENERAL REGULATIONS
ARTICLE 14.2. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION
Copr. (C) West Group 2002. All rights reserved.
§ 1063.1. Definitions
As used in this article:
(a) “Member insurer” means an insurer required to be a member of the association in accordance with subdivi-
sion (a) of Section 1063, except and to the extent that the insurer is participating in an insolvency program adop-
ted by the United States government.
(b) “Insolvent insurer” means a member insurer against which an order of liquidation or receivership with a
finding of insolvency has been entered by a court of competent jurisdiction.
(c)(1) “Covered claims” means the obligations of an insolvent insurer, including the obligation for unearned
premiums, (i) imposed by law and within the coverage of an insurance policy of the insolvent insurer; (ii) which
were unpaid by the insolvent insurer; (iii) which are presented as a claim to the liquidator in this state or to the
association on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings;
(iv) which were incurred prior to the date coverage under the policy terminated and prior to, on, or within 30
days after the date the liquidator was appointed; (v) for which the assets of the insolvent insurer are insufficient
to discharge in full; (vi) in the case of a policy of workers' compensation insurance, to provide workers' com-
pensation benefits under the workers' compensation law of this state; and (vii) in the case of other classes of in-
surance if the claimant or insured is a resident of this state at the time of the insured occurrence, or the property
from which the claim arises is permanently located in this state.
(2) “Covered claims” also include the obligations assumed by an assuming insurer from a ceding insurer where
the assuming insurer subsequently becomes an insolvent insurer if, at the time of the insolvency of the assuming
insurer, the ceding insurer is no longer admitted to transact business in this state. Both the assuming insurer and
the ceding insurer shall have been member insurers at the time the assumption was made. “Covered claims” un-
der this paragraph shall be required to satisfy the requirements of subparagraphs (i) to (vii), inclusive, of para-
graph (1), except for the requirement that the claims be against policies of the insolvent insurer. The association
shall have a right to recover any deposit, bond, or other assets that may have been required to be posted by the
ceding company to the extent of covered claim payments and shall be subrogated to any rights the policyholders
may have against the ceding insurer.
(3) “Covered claims” does not include obligations arising from the following:
(i) Life, annuity, health, or disability insurance.
(ii) Mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment
risks.
(iii) Fidelity or surety insurance including fidelity or surety bonds, or any other bonding obligations.
(iv) Credit insurance.
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
(v) Title insurance.
(vi) Ocean marine insurance or ocean marine coverage under any insurance policy including claims arising from
the following: the Jones Act (46 U.S.C.A. Sec. 688), the Longshore and Harbor Workers' Compensation Act (33
U.S.C.A. Sec. 901 et seq.), or any other similar federal statutory enactment, or any endorsement or policy af-
fording protection and indemnity coverage.
(vii) Any claims servicing agreement or insurance policy providing retroactive insurance of a known loss or
losses, except a special excess workers' compensation policy issued pursuant to subdivision (c) of Section
3702.8 of the Labor Code that covers all or any part of workers' compensation liabilities of an employer that is
issued, or was previously issued, a certificate of consent to self-insure pursuant to subdivision (b) of Section
3700 of the Labor Code.
(4) “Covered claims” does not include any obligations of the insolvent insurer arising out of any reinsurance
contracts, nor any obligations incurred after the expiration date of the insurance policy or after the insurance
policy has been replaced by the insured or canceled at the insured's request, or after the insurance policy has
been canceled by the association as provided in this chapter, or after the insurance policy has been canceled by
the liquidator, nor any obligations to any state or to the federal government.
(5) “Covered claims” does not include any obligations to insurers, insurance pools, or underwriting associations,
nor their claims for contribution, indemnity, or subrogation, equitable or otherwise, except as otherwise
provided in this chapter.
An insurer, insurance pool, or underwriting association may not maintain, in its own name or in the name of its
insured, any claim or legal action against the insured of the insolvent insurer for contribution, indemnity or by
way of subrogation, except insofar as, and to the extent only, that the claim exceeds the policy limits of the in-
solvent insurer's policy. In those claims or legal actions, the insured of the insolvent insurer is entitled to a credit
or setoff in the amount of the policy limits of the insolvent insurer's policy, or in the amount of the limits re-
maining, where those limits have been diminished by the payment of other claims.
(6) “Covered claims,” except in cases involving a claim for workers' compensation benefits or for unearned
premiums, does not include any claim in an amount of one hundred dollars ($100) or less, nor that portion of any
claim that is in excess of any applicable limits provided in the insurance policy issued by the insolvent insurer.
(7) “Covered claims” does not include that portion of any claim, other than a claim for workers' compensation
benefits, that is in excess of five hundred thousand dollars ($500,000).
(8) “Covered claims” does not include any amount awarded as punitive or exemplary damages.
(9) “Covered claims” does not include (i) any claim to the extent it is covered by any other insurance of a class
covered by this article available to the claimant or insured nor (ii) any claim by any person other than the origin-
al claimant under the insurance policy in his or her own name, his or her assignee as the person entitled thereto
under a premium finance agreement as defined in Section 673 and entered into prior to insolvency, his or her ex-
ecutor, administrator, guardian or other personal representative or trustee in bankruptcy and does not include any
claim asserted by an assignee or one claiming by right of subrogation, except as otherwise provided in this
chapter.
(10) “Covered claims” does not include any obligations arising out of the issuance of an insurance policy written
by the separate division of the State Compensation Insurance Fund pursuant to Sections 11802 and 11803.
(11) “Covered claims” does not include any obligations of the insolvent insurer arising from any policy or con-
tract of insurance issued or renewed prior to the insolvent insurer's admission to transact insurance in the State
of California.
(12) “Covered claims” does not include surplus deposits of subscribers as defined in Section 1374.1.
(d) “Admitted to transact insurance in this state” means an insurer possessing a valid certificate of authority is-
sued by the department.
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 3
(e) “Affiliate” means a person who directly or indirectly, through one or more intermediaries, controls, is con-
trolled by, or is under common control with an insolvent insurer on December 31 of the year next preceding the
date the insurer becomes an insolvent insurer.
(f) “Control” means the possession, direct or indirect, of the power to direct or cause the direction of the man-
agement 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 of an of-
ficial 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, 10 percent or more of the
voting securities of any other person. This presumption may be rebutted by showing that control does not in fact
exist.
(g) “Claimant” means any insured making a first party claim or any person instituting a liability claim; provided
that no person who is an affiliate of the insolvent insurer may be a claimant.
(h) “Ocean marine insurance” includes marine insurance as defined in Section 103, except for inland marine in-
surance, as well as any other form of insurance, regardless of the name, label, or marketing designation of the
insurance policy, that insures against maritime perils or risks and other related perils or risks, which are usually
insured against by traditional marine insurance such as hull and machinery, marine builders' risks, and marine
protection and indemnity. Those perils and risks insured against include, without limitation, loss, damage, or ex-
pense or legal liability of the insured arising out of or incident to ownership, operation, chartering, maintenance,
use, repair, or construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including
liability of the insured for personal injury, illness, or death for loss or damage to the property of the insured or
another person.
(i) “Unearned premium” means that portion of a premium that had not been earned because of the cancellation
of the insolvent insurer's policy and is that premium remaining for the unexpired term of the insolvent insurer's
policy. “Unearned premium” does not include any amount sought as return of a premium under any policy
providing retroactive insurance of a known loss or return of a premium under any retrospectively rated policy or
a policy subject to a contingent surcharge or any policy in which the final determination of the premium cost is
computed after expiration of the policy and is calculated on the basis of actual loss experience during the policy
period.
CREDIT(S)
1993 Main Volume
(Added by Stats.1978, c. 507, p. 1651, § 2, eff. Aug. 21, 1978. Amended by Stats.1979, c. 384, p. 1447, § 3;
Stats.1981, c. 1154, p. 4612, § 1; Stats.1983, c. 308, § 1; Stats.1984, c. 564, § 1; Stats.1987, c. 833, § 1;
Stats.1989, c. 1258, § 1; Stats.1991, c. 537 (S.B.1104), § 1; Stats.1992, c. 227 (S.B.1581), § 1.)
2002 Electronic Pocket Part Update
(Amended by Stats.1994, c. 6 (A.B.1667), § 2, eff. Feb. 10, 1994; Stats.1997, c. 372 (A.B.1148), § 1;
Stats.1997, c. 497 (S.B.1277), § 2.5; Stats.1999, c. 721 (A.B.1309), § 5.)
HISTORICAL AND STATUTORY NOTES
2CAQ
1994 Legislation
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 1
West's Ann.Cal.Ins.Code § 1063.2
WEST'S ANNOTATED CALIFORNIA CODES
INSURANCE CODE
DIVISION 1. GENERAL RULES GOVERNING INSURANCE
PART 2. THE BUSINESS OF INSURANCE
CHAPTER 1. GENERAL REGULATIONS
ARTICLE 14.2. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION
Copr. (C) West Group 2002. All rights reserved.
§ 1063.2. Covered claims; duties; priority of claims
(a) The association shall pay and discharge covered claims and in connection therewith pay for or furnish loss
adjustment services and defenses of claimants when required by policy provisions. It may do so either directly
by itself or through a servicing facility or through a contract for reinsurance and assumption of liabilities by one
or more member insurers or through a contract with the liquidator, upon terms satisfactory to the association and
to the liquidator, under which payments on covered claims would be made by the liquidator using funds
provided by the association.
(b) The association shall be a party in interest in all proceedings involving a covered claim, and shall have the
same rights as the insolvent insurer would have had if not in liquidation, including, but not limited to, the right
to: (1) appear, defend, and appeal a claim in a court of competent jurisdiction; (2) receive notice of, investigate,
adjust, compromise, settle, and pay a covered claim; and (3) investigate, handle, and deny a noncovered claim.
The association shall have no cause of action against the insureds of the insolvent insurer for any sums it has
paid out, except as provided by this article.
(c)(1) If damages against uninsured motorists are recoverable by the claimant from his or her own insurer, the
applicable limits of the uninsured motorists coverage shall be a credit against a covered claim payable under this
article. Any person having a claim that may be recovered under more than one insurance guaranty association or
its equivalent shall seek recovery first from the association of the place of residence of the insured, except that if
it is a first-party claim for damage to property with a permanent location, he or she shall seek recovery first from
the association of the permanent location of the property, and if it is a workers' compensation claim, he or she
shall seek recovery first from the association of the residence of the claimant. Any recovery under this article
shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. A
member insurer may recover in subrogation from the association only one-half of any amount paid by such in-
surer under uninsured motorist coverage for bodily injury or wrongful death (and nothing for a payment for any-
thing else), in those cases where the injured person insured by such an insurer has proceeded under his or her un-
insured motorist coverage on the ground that the tort feasor is uninsured as a result of the insolvency of his or
her liability insurer (an insolvent insurer as defined in this article), provided that such member insurer shall
waive all rights of subrogation against such tortfeasor. Any amount paid a claimant in excess of the amount au-
thorized by this section may be recovered by action brought by the association.
(2) Any claimant having collision coverage on a loss which is covered by the insolvent company's liability
policy shall first proceed against his or her collision carrier. Neither that claimant nor the collision carrier, if it is
a member of the association, shall have the right to sue or continue a suit against the insured of the insolvent in-
surance company for such collision damage.
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
(d) The association shall have the right to recover from any person who is an affiliate of the insolvent insurer
and whose liability obligations to other persons are satisfied in whole or in part by payments made under this
article the amount of any covered claim and allocated claims expense paid on behalf of that person pursuant to
this article.
(e) Any person having a claim or legal right of recovery under any governmental insurance or guaranty program
which is also a covered claim, shall be required to first exhaust his or her right under the program. Any amount
payable on a covered claim shall be reduced by the amount of any recovery under the program.
(f) “Covered claims” for unearned premium by lenders under insurance premium finance agreements as defined
in Section 673 shall be computed as of the earliest cancellation date of the policy pursuant to Section 673 or sub-
division (g) of this section.
(g) “Covered claims” shall not include any judgments against or obligations or liabilities of the insolvent insurer
or the commissioner, as liquidator, or otherwise resulting from alleged or proven torts, nor shall any default
judgment or stipulated judgment against the insolvent insurer, or against the insured of the insolvent insurer, be
binding against the association.
(h) “Covered claims” shall not include any loss adjustment expenses, including adjustment fees and expenses,
attorney fees and expenses, court costs, interest, and bond premiums, incurred prior to the appointment of a li-
quidator.
CREDIT(S)
1993 Main Volume
(Added by Stats.1969, c. 1347, p. 2699, § 3, eff. Sept. 2, 1969. Amended by Stats.1970, c. 1205, p. 2121, § 4;
Stats.1971, c. 436, § 2; Stats.1981, c. 1154, p. 4614, § 2; Stats.1983, c. 308, § 2; Stats.1984, c. 433, § 1;
Stats.1987, c. 833, § 2; Stats.1991, c. 537 (S.B.1104), § 3; Stats.1992, c. 427 (A.B. 3355), § 113; Stats.1992, c.
227 (S.B.1581), § 2.)
2002 Electronic Pocket Part Update
(Amended by Stats.1994, c. 6 (A.B.1667), § 3, eff. Feb. 10, 1994.)
HISTORICAL AND STATUTORY NOTES
2CAQ
1994 Legislation
The 1994 amendment, in subd. (c), substituted “permanent location” for “location” following “shall seek recov-
ery first from the association of the”; deleted subds. (f) and (g); redesignated as subds. (f) to (h) former subds.
(h) to (j); and made other, nonsubstantive changes.
Legislative intent relating to Stats.1994, c. 6 (A.B.1667), see Historical and Statutory Notes under Insurance
Code § 1063.
1993 Main Volume
As originally added in 1969, the last sentence of subd. (c) read as follows: “A member insurer may recover from
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
TAB 3
36 OKLA. STAT. ANN. §§ 2004(6), 2004(8), 2007(A)(2)
§ 2004. Definitions, 36 Okl.St.Ann. § 2004
36 Okl.St.Ann. § 2004
OKLAHOMA STATUTES ANNOTATED
TITLE 36. INSURANCE
CHAPTER 1. INSURANCE CODE
ARTICLE 20A. PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION ACT
§ 2004. Definitions
As used in the Oklahoma Property and Casualty Insurance Guaranty Association Act: [FN1]
1. “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 31 of the year next preceding the date the insurer becomes
an insolvent insurer;
2. “Association” means the Oklahoma Property and Casualty Insurance Guaranty Association;
3. “Claimant” means any insured making a first-party claim or any person instituting a liability claim; provided that no person
who is an affiliate of the insolvent insurer may be a claimant;
4. “Commissioner” means the Commissioner of Insurance;
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 of an official position with or corporate office held
by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to
vote, or holds proxies representing ten percent (10%) 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 of an insured or third party liability claimant, 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 act
applies issued by an insurer, if such insurer becomes an insolvent insurer after the effective date of this act [FN2] and (a) the
claimant or insured is a resident of this state at the time of the insured event, provided that for entities other than an individual,
the residence of a claimant or insured is 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” shall not include
any amount awarded as punitive or exemplary damages; 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; provided,
that a claim for any such amount, asserted against a person insured under a policy issued by an insurer which has become
an insolvent insurer, which, if it were not a claim by or for the benefit of a reinsurer, insurer, insurance pool or underwriting
association, would be a “covered claim” may be filed directly with the receiver of the insolvent insurer, but in no event may
any such claim be asserted in any legal action against the insured of such insolvent insurer. “Covered claim” shall not include
supplementary payment obligations including, but not limited to, adjustment fees and expenses, attorneys' fees and expenses,
court costs, interest and bond premiums incurred prior to the determination that an insurer is an insolvent insurer under this
act. [FN3] “Covered claim” shall also mean the claim of an agent for amounts of unearned premiums advanced or paid by
such agent on behalf of a policyholder, however, payment of such covered claims for unearned premiums advanced after the
effective date of this section shall be made jointly to such agent and policyholder unless an unconditional written assignment
has been executed by the policyholder to the agent;
7. “Director” means any one of the directors of the Association created herein;
8. “Insolvent insurer” means an insurer licensed by the Commissioner to transact insurance in this state either at the time
the policy was issued or when the insured event occurred and determined to be insolvent and ordered liquidated by a court
of competent jurisdiction;
9. “Member insurer” means any person who (a) writes any kind of insurance to which this act applies, including the exchange
of reciprocal or interinsurance contracts and (b) is licensed by the Commissioner to transact insurance in this state, except those
insurers enumerated in Section 110 of Title 36 of the Oklahoma Statutes;
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
§ 2004. Definitions, 36 Okl.St.Ann. § 2004
10. “Net direct written premiums” means direct gross premiums written in this state on insurance policies to which this act
applies, less return premiums thereon and dividends paid or credited to policyholders on such direct business. “Net direct written
premiums” does not include premiums on contracts between insurers or reinsurers; and
11. “Person” means an individual, company, insurer, association, organization, society, reciprocal or interinsurance, exchange
partnership, syndicate, business trust, corporation, Lloyds association, voluntary association or entity and association, group
or department of underwriters.
CREDIT(S)
1999 Main Volume
Laws 1980, c. 362, § 4, emerg. eff. June 27, 1980; Laws 1986, c. 251, § 30, emerg. eff. June 13, 1986; Laws 1988, c. 252,
§ 3, eff. Nov. 1, 1988.
[FN1] Title 36, § 2001 et seq.
[FN2] O.S.L.1980, c. 362, emergency effective June 27, 1980.
[FN3] Section 2001 et seq. of this title.
<>

NOTES OF DECISIONS
Covered claim 1
1. Covered claim
Uninsured motorist insurer was allowed to maintain a claim against tort-feasor only for damage above the limits of the policy
insolvent insurer had issued to tort-feasor. Welch v. Armer, Okla., 776 P.2d 847 (1989).
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
Page 1
36 Okl.St.Ann. § 2007
OKLAHOMA STATUTES ANNOTATED
TITLE 36. INSURANCE
CHAPTER 1. INSURANCE CODE
ARTICLE 20A. PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION ACT
Copr. (C) West Group 2001. All rights reserved.
§ 2007. Powers and duties of Association
A. The Association shall:
1. Be obligated to pay the covered claims existing prior to the determination of insolvency if the claims arise
within thirty (30) days after the determination of insolvency, or before the policy expiration date if less than
thirty (30) days after the determination, or before the insured replaces the policy or causes its cancellation, if he
does so within thirty (30) days of the determination. Such obligation shall be satisfied by paying to the claimant
an amount as follows:
a. the full amount of a covered claim for benefits under a workers' compensation insurance coverage,
b. an amount not exceeding Ten Thousand Dollars ($10,000.00) per policy for a covered claim for the return
of unearned premium, and
c. an amount not exceeding One Hundred Fifty Thousand Dollars ($150,000.00) per claimant for all other
covered claims.
In no event shall the Association be obligated to pay a claimant an amount in excess of the obligation of the in-
solvent insurer under the policy or coverage from which the claim arises or in excess of the limits of the Associ-
ation's obligation existing on the date on which the order of liquidation is filed with the court clerk;
2. Be deemed the insurer to the extent of the obligations on covered claims and to that extent shall have all
rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent;
3. Allocate claims paid and expenses incurred among the three accounts set out in Section 2005 of this title sep-
arately, and assess member insurers separately for each account amounts necessary to pay the obligations of the
Association under this section subsequent to a member insurer becoming an insolvent insurer, the expenses of
handling covered claims subsequent to an insolvency, the cost of examinations under Section 2013 of this title,
and other expenses authorized by the Oklahoma Property and Casualty Insurance Guaranty Association Act,
Sections 2001 et seq. of this title. The assessments of each member insurer shall be in the proportion that the net
direct written premiums of the member insurer for the calendar year preceding the assessment on the kinds of in-
surance in the account bear to the net direct written premiums of all participating insurers for the calendar year
preceding the assessment on the kinds of insurance in the account. Each member insurer shall be notified in
writing of the assessment not later than thirty (30) days before it is due. No member insurer may be assessed in
any year an amount greater than two percent (2%) of the net direct written premiums of that member or one per-
cent (1%) of that member insurer's surplus as regards policyholders for the calendar year preceding the assess-
ment on the kinds of insurance in the account, whichever is less. If the maximum assessment, together with the
other assets of the Association, does not provide in any one (1) year in any account an amount sufficient to make
all necessary payments from that account, the funds available may be prorated and the unpaid portion shall be
paid as soon thereafter as funds become available. The Association shall pay claims in any order which it deems
reasonable, including the payment of claims as the claims are received from the claimants or in groups or cat-
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
egories of claims. The Association may exempt or defer, in whole or in part, the assessment of any member in-
surer, if the assessment would cause the member insurer's financial statement to reflect amounts of capital or
surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the
member insurer is authorized to transact insurance. During the period of deferment, no dividends shall be paid to
shareholders or policyholders. Deferred assessments shall be paid when such payments will not reduce capital or
surplus below required minimums. Such payments may be refunded to those companies receiving larger assess-
ments by virtue of such deferment, or, at the election of any such company credited against future assessments.
Each member insurer serving as a servicing facility may set off against any assessment authorized payments
made on covered claims and expenses incurred in the payment of such covered claims by such member insurer if
they are chargeable to the account for which the assessment is made;
4. Investigate claims brought against the Association and adjust, compromise, settle and pay covered claims to
the extent of the obligation of the Association and deny all other claims and may review settlements, releases
and judgments on covered claims to which the insolvent insurer or its insureds were parties to determine the ex-
tent to which such settlements, releases and judgments may be properly contested;
5. Notify such persons as the Commissioner directs as provided for in Section 2009 of this title;
6. Handle claims through employees or through one or more insurers or other persons incorporated and resident
in the State of Oklahoma designated as servicing facilities. Designation of a servicing facility is subject to ap-
proval of the Commissioner, but such designation may be declined by a member insurer;
7. Reimburse each servicing facility for obligations of the Association paid by the facility and for reasonable ex-
penses incurred by the facility while handling claims on behalf of the Association and pay the other expenses of
the Association authorized by the Oklahoma Property and Casualty Insurance Guaranty Association Act; and
8. Have standing to appear before any court of this state which has jurisdiction over an impaired or insolvent in-
surer for whom the Association is or may become obligated pursuant to the provisions of the Oklahoma Property
and Casualty Insurance Guaranty Association Act. Such standing shall extend to all matters germane to the
powers and duties of the Association including, but not limited to, proposals for rehabilitation, acquisition, mer-
ger, reinsuring, or guaranteeing the covered policies of the impaired or insolvent insurer, and the determination
of covered policies and contractual obligations of the impaired or insolvent insurer.
B. The Association may:
1. Employ or retain such persons as are necessary to handle claims and perform other duties of the Association;
2. Borrow funds necessary to effect the purposes of the Oklahoma Property and Casualty Insurance Guaranty
Association Act in accordance with the plan of operation;
3. Sue or be sued;
4. Negotiate and become a party to such contracts as are necessary to carry out the purpose of the Oklahoma
Property and Casualty Insurance Guaranty Association Act;
5. Refund to member insurers in proportion to the contribution of each member insurer that amount by which the
assets of the Association exceed its liabilities, if at the end of any calendar year the board of directors finds that
the assets of the Association exceed the liabilities as estimated by the board of directors for the coming year;
6. Lend monies to an insurer declared to be impaired by the Commissioner. The Association, with approval of
the Commissioner, shall approve the amount, length and terms of the loan. “Impaired Insurer” for purposes of
this paragraph shall mean an insurer potentially unable to fulfill its contractual obligations, but shall not mean an
insolvent insurer;
7. Perform such other acts as are necessary or proper to effectuate the purpose of the Oklahoma Property and
Casualty Insurance Guaranty Association Act; and
8. Intervene as a party in interest in any supervision, conservation, liquidation, rehabilitation, impairment or re-
ceivership in which policyholders interests and interests of the Association may be or are affected.
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 1
36 Okl.St.Ann. § 2010
OKLAHOMA STATUTES ANNOTATED
TITLE 36. INSURANCE
CHAPTER 1. INSURANCE CODE
ARTICLE 20A. PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION ACT
Copr. (C) West Group 2001. All rights reserved.
§ 2010. Payment of covered claims—Recovery from certain persons—Priority of claims
A. Any person recovering under this act [FN1] shall be deemed to have assigned his rights under the policy to
the Association to the extent of his recovery from the Association. Every insurer or claimant seeking the protec-
tion of this act shall cooperate with the Association to the same extent as such person would have been required
to cooperate with the insolvent insurer. In the case of an insolvent insurer operating on a plan with assessment li-
ability, payment of covered claims by the Association shall not operate to reduce the liability of insured to the
receiver, liquidator or statutory successor for unpaid assessments.
B. The Association shall have the right to recover from the following persons the amount of any “covered
claim” paid on behalf of such person pursuant to the provisions of the Oklahoma Property and Casualty Insur-
ance Guaranty Association Act: [FN1]
1. Any insured whose net worth on December 31 of the year next preceding the date the insurer becomes an in-
solvent insurer exceeds Fifty Million Dollars ($50,000,000.00) and whose liability obligations to other persons
are satisfied in whole or in part by payments made pursuant to the provisions of the Oklahoma Property and
Casualty Insurance Guaranty Association Act; and
2. Any person who is an affiliate of the insolvent insurer and whose liability obligations to other persons are sat-
isfied in whole or in part by payments made pursuant to the provisions of the Oklahoma Property and Casualty
Insurance Guaranty Association Act.
C. The receiver, liquidator or statutory successor of an insolvent insurer shall be bound by settlements of
covered claims by the Association or a similar organization in another state. The Association shall have a prior-
ity over general creditors of the insolvent insurer against the assets of the insolvent insurer equal to the amount
of covered claims paid by the Association pursuant to this act. The expenses of the Association in handling
claims shall be accorded the same priority as the liquidator's expenses. No other priority under the provisions of
this section unless the laws of such other state grant a similar priority to the Association, in which case such oth-
er association or similar organization of another state shall have a priority against the assets of the insolvent in-
surer equal to that given to the Association by such other state.
CREDIT(S)
1999 Main Volume
Laws 1980, c. 362, § 10, emerg. eff. June 27, 1980; Laws 1986, c. 251, § 33, eff. Nov. 1, 1986.
[FN1] Title 36, § 2001 et seq.
HISTORICAL AND STATUTORY NOTES
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 2
1999 Main Volume
The 1986 amendment, in subsection A, in the last sentence, inserted “of” following “payment”; inserted subsec-
tion B; and redesignated former subsection B as subsection C.
LIBRARY REFERENCES
1999 Main Volume
Insurance 1486 to 1512.
WESTLAW Topic No. 217.
C.J.S. Insurance §§ 41, 147 to 153, 156.
NOTES OF DECISIONS
Construction and application 1
1. Construction and application
Claims by policyholder of insolvent insurer were entitled to equal priority to claims of property and Casualty In-
surance Guaranty Association, for payments to persons recovering under Property and Casualty Insurance Guar-
anty Act who were deemed to have assigned their rights under the policy to the Association. State ex rel. Grimes
v. Oklahoma Property and Cas. Ins. Guar. Ass'n, Okla.App. Div. 1, 796 P.2d 352 (1990).
36 Okl. St. Ann. § 2010
OK ST T. 36 § 2010
END OF DOCUMENT
© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.
TAB 4
The Policy WC1-1945251
CIGA 206
CIGA 207
CIGA 208
CIGA 209
CIGA 210
CIGA 211
CIGA 212
CIGA 213
CIGA 214
CIGA 215
CIGA 216
CIGA 217
CIGA 218
CIGA 219
CIGA 220
CIGA 221
CIGA 222
CIGA 223
CIGA 224
CIGA 225
CIGA 226
CIGA 227
CIGA 228
CIGA 229
CIGA 230
CIGA 231
CIGA 232
CIGA 233
CIGA 234
CIGA 235
CIGA 236
CIGA 237
CIGA 238
CIGA 239
CIGA 240
CIGA 241
CIGA 242
CIGA 243
CIGA 244
CIGA 245
CIGA 246
CIGA 247
CIGA 248
CIGA 249
CIGA 250
CIGA 251
CIGA 252
CIGA 253
CIGA 254
TAB 5
Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,
225 P.3d 1061, 1068 (Wyo. 2010)
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
225 P.3d 1061
Supreme Court of Wyoming.
WYOMING MEDICAL CENTER, INC., a Wyoming corporation, Appellant (Defendant),
v.
WYOMING INSURANCE GUARANTY ASSOCIATION, a Wyoming non-profit unincorporated legal entity,
Appellee (Plaintiff).
No. S–09–0109. | Feb. 26, 2010.
Synopsis
Background: Wyoming Insurance Guaranty Association (WIGA) brought action against insured hospital, seeking to recover
amounts for deductibles for claims that WIGA had paid under medical professional liability insurance policy after insurer
became insolvent. Insured counterclaimed, seeking to recover attorney fees that it had paid in defending claims that were
covered under policy. The District Court, Natrona County, David B. Park, J., entered summary judgment in favor of WIGA,
and insured appealed.
Holdings: The Supreme Court, Kite, J., held that:
[1]
res judicata did not bar WIGA’s claim for amounts of deductibles, and
[2]
WIGA was not required to pay attorney fees.
Affirmed.
West Headnotes (15)
[1]
Appeal and Error Cases Triable in Appellate Court
When reviewing an order granting summary judgment, the Supreme Court considers the record de novo.
2 Cases that cite this headnote
[2]
Appeal and Error Extent of Review Dependent on Nature of Decision Appealed from
On appeal of an order granting summary judgment, the Supreme Court has exactly the same duty as the district
judge, and, if there is a complete record on appeal, the Court has exactly the same material as did the district judge
and must follow the same standards.
2 Cases that cite this headnote
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
[3]
Appeal and Error Extent of Review Dependent on Nature of Decision Appealed from
Determining propriety of granting a motion for summary judgment, for purposes of reviewing the grant on appeal,
depends upon the correctness of a court’s dual findings that there is no genuine issue as to any material fact and that
the prevailing party is entitled to judgment as a matter of law.
4 Cases that cite this headnote
[4]
Appeal and Error Judgment
On appeal of a grant of summary judgment, the Supreme Court looks at the record from the viewpoint most
favorable to the party opposing the motion, giving to him all favorable inferences to be drawn from the facts
contained in affidavits, depositions and other proper material appearing in the record.
3 Cases that cite this headnote
[5]
Judgment Questions for jury
The question of whether res judicata bars a claim is one of law.
3 Cases that cite this headnote
[6]
Appeal and Error Cases Triable in Appellate Court
Statutory construction is a question of law, which the Supreme Court reviews de novo.
1 Cases that cite this headnote
[7]
Judgment Nature and requisites of former recovery as bar in general
Four factors must exist for res judicata to apply to bar re-litigation of previously litigated causes of action or claims:
(1) the parties must be identical; (2) the subject matter must be identical; (3) the issues must be identical and relate
to the same subject matter; and (4) the capacities of the persons must be identical in reference to both the subject
matter and the issues between them.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
4 Cases that cite this headnote
[8]
Insurance Particular matters concluded
Prior default declaratory judgment, determining that insured hospital was not obligated to pay deductible amounts to
insolvent medical professional liability insurer, did not, under doctrine of res judicata, bar claim against insured by
Wyoming Insurance Guaranty Association (WIGA), seeking payment of deductible amounts for claims WIGA had
paid on liability claims after insurer’s insolvency; prior judgment had no effect on WIGA’s statutory rights and
duties, which were limited expressly to those insurer would have had if it had not become insolvent. West’s
Wyo.Stat.Ann. §§ 26–31–106, 26–31–108, 26–31–110.
1 Cases that cite this headnote
[9]
Statutes Language and intent, will, purpose, or policy
The paramount consideration in statutory interpretation is to determine the legislature’s intent, which must be
ascertained initially and primarily from the words used in the statute.
Cases that cite this headnote
[10]
Statutes What constitutes ambiguity;  how determined
When interpreting a statute, a court looks first to the plain and ordinary meaning of the words to determine if the
statute is ambiguous.
2 Cases that cite this headnote
[11]
Statutes What constitutes ambiguity;  how determined
A statute is clear and unambiguous if its wording is such that reasonable persons are able to agree on its meaning
with consistency and predictability.
1 Cases that cite this headnote
[12]
Statutes What constitutes ambiguity;  how determined
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
A statute is ambiguous, so as to require judicial construction, if it is found to be vague or uncertain and subject to
varying interpretations.
Cases that cite this headnote
[13]
Statutes Plain language;  plain, ordinary, common, or literal meaning
If a court determines that a statute is clear and unambiguous, the court must give effect to the plain language of the
statute.
1 Cases that cite this headnote
[14]
Statutes What constitutes ambiguity;  how determined
Statutes Questions of law or fact
Divergent opinions among parties as to the meaning of a statute may be evidence of ambiguity but is not conclusive;
ultimately, whether a statute is ambiguous is a matter of law to be determined by the court.
2 Cases that cite this headnote
[15]
Insurance Costs and expenses
Wyoming Insurance Guaranty Association (WIGA) was not required to pay attorney fees, that had been paid by
insured hospital to its law firm for services provided in defending hospital against claims covered under medical
professional liability insurance policy after insurer became insolvent, since Insurance Guaranty Association Act
excluded as “covered claims” supplementary payment obligations, including attorney fees, even if insurer would
have been liable for the attorney fees under the insurance policy. West’s Wyo.Stat.Ann. § 26–31–103(a)(ii)(D).
Cases that cite this headnote
Attorneys and Law Firms
*1062 Representing Appellant: Stephenson D. Emery of Williams, Porter, Day & Neville, P.C., Casper, Wyoming.
Representing Appellee: James R. Bell of Murane & Bostwick, LLC, Casper, Wyoming.
Before VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, JJ.
Opinion
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 4
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
KITE, Justice.
[¶ 1] After the Wyoming Medical Center’s (WMC) insurer became insolvent, the Wyoming Insurance Guaranty Association
(WIGA) paid claims made against WMC. WIGA then filed a complaint against WMC claiming that it was obligated to pay
the deductibles for each claim. Asserting that WIGA stood in the shoes of the insurer, WMC argued that WIGA’s claim was
barred by an earlier district court ruling that WMC was not obligated to pay the deductibles to its insolvent insurer. WIGA
filed a summary judgment motion which the district court granted, ruling that WMC was obligated to pay the deductibles.
WMC appealed. We affirm.
ISSUES
[¶ 2] WMC states the issues for this Court’s determination as follows:
1. In light of the trial court’s prior ruling “[t]hat [Wyoming Medical Center *1063 (“WMC”) ] does not have any
obligation to pay [Phico Insurance Company (“Phico”) ] any deductible on claims settled by the Wyoming Insurance
Guaranty Association [ (“WIGA”),]” is WIGA’s complaint in the same court to collect those same deductibles from WMC
under a canceled professional liability insurance policy on behalf of the liquidated insurer, Phico, barred by the doctrine of
res judicata?
2. Is WMC entitled to a setoff for attorneys’ fees incurred in the defense of various covered claims?
WIGA contends the district court properly granted summary judgment in its favor and res judicata does not apply.
FACTS
[¶ 3] PHICO Insurance Company (PHICO) issued a Health Care Providers Liability Policy to WMC effective from July 16,
1999, to July 16, 2000. The parties renewed the policy twice, and it remained in effect until July 16, 2002. The policy
provided that PHICO would pay all sums which WMC became legally obligated to pay as damages because of bodily injury
or property damage caused by a medical incident occurring and reported during the effective date of the policy. The policy
also provided that PHICO’s obligation to pay damages under the policy applied only in excess of a deductible amount of
$50,000.
[¶ 4] On February 1, 2002, while the policy was still in effect, a Pennsylvania court entered an order of liquidation against
PHICO. The order stated that all insurance policies issued by PHICO were cancelled and terminated for all purposes. Prior to
the liquidation, PHICO had been providing a defense to WMC on several claims made against it.
[¶ 5] After entry of the liquidation order, WIGA stepped in to pay the covered claims pursuant to the Wyoming Insurance
Guaranty Association Act, Wyo. Stat. Ann. § 26–31–101 through 26–31–117 (1991).
The Act ... is based upon the Post–Assessment Property and Liability Insurance Guaranty Association Model Act ...
prepared by the National Association of Insurance Commissioners....
The Act creates an involuntary nonprofit unincorporated legal entity, [WIGA], whose members are insurers qualified to
transact business in Wyoming. Wyo.Stat. § 26–31–104(a) and (b). Each member contributes an assessment, based on a
percentage of premiums from insurance policies written in Wyoming, to a fund which is used to pay claims. Wyo.Stat. §
26–31–107(a). When an insurance company is determined to be insolvent, [WIGA] “steps into the shoes of the insolvent
insurer.” [WIGA] is deemed the insurer to the extent of its obligation for covered claims.... Wyo.Stat. § 26–31–106(a)(ii).
Wyoming Ins. Guar. Ass’n v. Woods, 888 P.2d 192, 195 (Wyo.1994) (some citations omitted).
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 5
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
[¶ 6] In the present case, WIGA paid three claims against WMC, the first in June of 2002 for $25,000; the second in July of
2002 for $165,000; and the third in August of 2002 for $150,000. After paying the claims, WIGA demanded payment from
WMC of $125,000, the sum of the deductibles for the claims paid in June ($25,000), July ($50,000) and August ($50,000) of
2002. WMC refused the demand, claiming that it had no obligation to pay the deductibles.
[¶ 7] Subsequently, WMC filed a complaint for declaratory judgment against PHICO in Wyoming district court. WMC
sought a declaration that PHICO’s liquidation was a breach of the insurance contract and, upon the insurer’s breach, WMC
had no obligation to pay PHICO any deductible on the claims WIGA paid. PHICO failed to appear in the action and WMC
moved for entry of default. The clerk of court entered default and ultimately, in 2004, the district court entered a default
judgment declaring that PHICO breached the insurance contract and WMC had no obligation to pay PHICO any deductible
on claims paid by WIGA.
[¶ 8] WIGA then filed its complaint requesting judgment against WMC for the $125,000 plus interest and costs. WMC
answered, denying any obligation to pay the deductibles on the ground that the default judgment, holding it did not have to
pay PHICO, applied also to WIGA. WMC also filed a counterclaim against WIGA alleging *1064 that, under §
26–31–106(a)(ii) of the Insurance Guaranty Association Act, WIGA was deemed the insurer upon PHICO’s insolvency and
was obligated to pay any damages WMC sustained as a result of PHICO’s breach of the insurance contract, including
$50,000 in settlement costs WMC had paid that PHICO was obligated to pay and $45,000 in legal fees. WMC asked that
WIGA’s complaint be dismissed and judgment be awarded in its favor on the counterclaim.
[¶ 9] WIGA denied that it was obligated to pay WMC any amounts. WIGA subsequently filed a motion for summary
judgment in its favor on both the complaint and the counterclaim.1 The parties filed briefs and, after a hearing, the district
court issued a decision letter in which it concluded WIGA was entitled to judgment against WMC in the amount of $125,000
plus prejudgment interest and WMC was not entitled to a set-off for its payment of $50,000 in settlement of a different claim
made against it under the insurance policy. The district court requested additional briefing on the question of whether WMC
was entitled to a set-off against the judgment in the amount of fees it had paid directly to attorneys who had defended claims
against it.
1 In its summary judgment motion, in addition to arguing that res judicata did not apply, WIGA argued alternatively that the default
judgment entered in Wyoming against PHICO was void because the liquidation order from the Pennsylvania court and
Pennsylvania law provided that no action at law or equity could be brought against PHICO in Pennsylvania or elsewhere except as
a claim in a liquidation proceeding. WMC responded that this Court rejected a similar argument in Hoiness–La Bar Ins. v. Julien
Constr. Co., 743 P.2d 1262 (Wyo.1987) and, in any event, the Pennsylvania order addressed only monetary claims, it did not bar
declaratory judgment actions. Neither party raises the issue on appeal and we confine our discussion to the issues raised.
[¶ 10] The parties subsequently filed cross motions for summary judgment on the attorney fees issue. After considering the
parties’ briefs and arguments at a hearing, the district court entered an order granting summary judgment for WIGA on that
claim as well. WMC appealed both orders.
STANDARD OF REVIEW
[¶ 11] When reviewing an order granting summary judgment, we consider the record de novo. Stone v. Devon
[1] [2] [3] [4] [5] [6]
Energy Prod. Co., L.P., 2009 WY 114, ¶ 10, 216 P.3d 489, 492 (Wyo.2009).
[W]e have exactly the same duty as the district judge; and, if there is a complete record before us, we
have exactly the same material as did [the district judge]. We must follow the same standards. The
propriety of granting a motion for summary judgment depends upon the correctness of a court’s dual
findings that there is no genuine issue as to any material fact and that the prevailing party is entitled to
judgment as a matter of law. This court looks at the record from the viewpoint most favorable to the
party opposing the motion, giving to him all favorable inferences to be drawn from the facts contained
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 6
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
in affidavits, depositions and other proper material appearing in the record.
McGarvey v. Key Prop. Mgmt. LLC, 2009 WY 84, ¶ 10, 211 P.3d 503, 506 (Wyo.2009). The question of whether res judicata
bars a claim is one of law. Osborn v. Kilts, 2006 WY 142, ¶ 6, 145 P.3d 1264, 1266 (Wyo.2006). Statutory construction is
also a question of law, which we review de novo. Luhm v. Bd. of Trustees of Hot Springs Co. Sch. Dist. No. 1, 2009 WY 63, ¶
8, 206 P.3d 1290, 1294 (Wyo.2009).
DISCUSSION
[¶ 12] WMC argues, as it did in the district court, that res judicata barred WIGA’s claim for payment of the deductibles.
WMC contends the earlier default judgment against PHICO established that it had no obligation to pay PHICO any
deductibles on claims settled by WIGA. WMC asserts WIGA stands in the shoes of PHICO, has no more right to payment of
the deductibles than PHICO did and its claim is precluded by the earlier ruling.
[¶ 13] WIGA responds that the doctrine of res judicata does not bar its claim because the doctrine only applies when the
parties in the earlier action are identical to those in the *1065 later action. Because the default judgment was entered in a case
between PHICO and WMC, and WIGA was not a party to that action, WIGA contends res judicata does not apply. WIGA
further asserts that it does not stand in the shoes of PHICO so as to be considered one and the same for purposes of its right to
payment of the deductibles.
[¶ 14] In its ruling on this issue, the district court stated:
The criteria used to determine res judicata’s applicability to a situation are: “(1) the parties were identical; (2) the subject
matter was identical; (3) the issues were the same and related to the subject matter; and (4) the capacities of the persons
were identical in reference to both the subject matter and the issues between them.” [Osborn v. Kilts, 2006 WY 142, ¶ 8,
145 P.3d 1264, 1266–1267 (Wyo.2006).] At a minimum, the first and the fourth criteria are not present in this case. The
parties in this case are not identical, since WIGA is not PHICO for all purposes, nor were the capacities identical. WMC,
in the first action, was attempting, reasonably it seems, to avoid having to pay deductibles to an insolvent insurer that had
not provided a defense or even had to pay the settlement claim. WIGA, on the other hand, is carrying out its statutory
obligation to protect and conserve the funds allocated to it.
Finally, there is considerable logic to support the Default Judgment between WMC and PHICO. It clearly makes sense to
protect WMC and save it from having to pay deductibles to an insolvent insurer that failed to meet its obligations under the
insurance contract. It makes no sense, however, to interpret the Default Judgment as protecting WMC as against WIGA,
which ended up paying the claim settlement amounts. If WMC were to prevail on this argument, it would be in a
substantially better position than it would have if PHICO had not become insolvent. The Default Judgment does not
preclude WIGA from collecting from WMC, it only prevents PHICO from collection attempts.
[7]
[¶ 15] We begin our review of the district court’s ruling by considering the law governing the doctrine of res judicata,
which bars re-litigation of previously litigated causes of action or claims. CJ v. SA, 2006 WY 49, ¶ 11, 132 P.3d 196, 202
(Wyo.2006). As the district court stated, four factors must exist for res judicata to apply: 1) the parties must be identical; 2)
the subject matter must be identical; 3) the issues must be identical and relate to the same subject matter; and 4) the capacities
of the persons must be identical in reference to both the subject matter and the issues between them. Id. The party asserting
that res judicata applies must analyze the elements of the relevant doctrine by comparing the earlier proceeding and the
present one. Id.
[8]
[¶ 16] WMC acknowledges that PHICO was a party in the earlier proceeding and WIGA was not, and WIGA, not PHICO,
is a party in the present action. WMC contends, however, the requirement that the parties be identical is satisfied because
PHICO and WIGA are in privity with one another; that is, they have a close, significant connection and share a direct
financial or proprietary interest. Osborn, ¶ 10, 145 P.3d at 1267. For purposes of applying res judicata, WMC asserts, the
parties need not be identical but may be in privity with each other.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 7
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
[¶ 17] As the basis for its assertion that WIGA and PHICO are in privity with each other, WMC cites the following
provisions of the Insurance Guaranty Association Act:
— § 26–31–106(a)(ii), which states that WIGA shall “be deemed the insurer to the extent of its obligation of the covered
claims and to that extent has all rights, duties and obligations of the insolvent insurer as if the insurer were not
insolvent;”
— § 26–31–110(a), providing that WIGA “has no cause of action against the insolvent insurer’s insured for any sums it
has paid out except the causes of action as the insolvent insurer would have had if it had paid those sums;”
— § 26–31–108(d)(i)(D), stating that “notice of claims to the receiver or liquidator of the insolvent insurer shall be
deemed notice to the association....”
*1066 [¶ 18] In addition to the statutory provisions, WMC cites this Court’s statement in Wyoming Ins. Guar. Ass’n v.
Allstate Indemnity Co., 844 P.2d 464 (Wyo.1992) that WIGA steps into the shoes of an insolvent insurance company by
assuming its obligations. WMC also contends WIGA and PHICO acted as if they stood in each other’s shoes. WMC asserts
that WIGA authorized PHICO to demand payment from WMC of the deductible amounts on WIGA’s behalf; thus, by
WIGA’s own admission, it stands in the shoes of PHICO.
[¶ 19] We consider first the provisions of the Insurance Guaranty Association Act, keeping in mind that
[9] [10] [11] [12] [13] [14]
our review is governed by the following standards:
The paramount consideration is to determine the legislature’s intent, which must be ascertained initially and primarily from
the words used in the statute. We look first to the plain and ordinary meaning of the words to determine if the statute is
ambiguous. A statute is clear and unambiguous if its wording is such that reasonable persons are able to agree on its
meaning with consistency and predictability. Conversely, a statute is ambiguous if it is found to be vague or uncertain and
subject to varying interpretations. If we determine that a statute is clear and unambiguous, we give effect to the plain
language of the statute.
We have recognized that divergent opinions among parties as to the meaning of a statute may be evidence of ambiguity but
is not conclusive. Ultimately, whether a statute is ambiguous is a matter of law to be determined by the court.
Kennedy Oil v. Dep’t of Revenue, 2008 WY 154, ¶ 10, 205 P.3d 999, 1003 (Wyo.2008) (citations omitted).
[¶ 20] In construing specifically the Insurance Guaranty Association Act, we previously have said:
The purpose of the Act is to provide a mechanism for the payment of covered claims which avoids
excessive delay in payment and avoids financial loss to claimants or insureds because of the
insolvency of an insurer. The Act seeks to remedy the social consequences resulting from the
insolvency of an insurer.... Therefore, as remedial legislation designed for the public’s protection, this
court must liberally construe the Act to achieve its purposes and strictly construe all exceptions to
indemnification.
Woods, 888 P.2d at 195 (citations omitted).
[¶ 21] Section 26–31–106 sets out WIGA’s duties and powers in relevant part as follows:
(a) Except as provided in subsection (c) of this section, [WIGA] shall:
(i) Be obligated to pay covered claims:
....
(ii) Be deemed the insurer to the extent of its obligation of the covered claims and to that extent has all rights, duties and
obligations of the insolvent insurer as if the insurer were not insolvent;
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Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
....
(c) Notwithstanding subsection (a) of this section, the association:
....
(iv) 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.
[¶ 22] Section 26–31–103(a)(ii) defines a “covered claim” for purposes of the Act as follows:
(ii) “Covered claim” means an unpaid claim which arises out of and is within the coverage and does not exceed the
applicable limits of an insurance policy to which this chapter applies issued by an insurer, if the insurer is an insolvent
insurer and the claimant or insured is a resident of this state at the time of the insured event or the property from which the
claim arises is permanently located in this state, but “covered claim” does not include:
(A) Any amount due any reinsurer, insurer, insurance pool or underwriting association as subrogation recoveries or
otherwise;
....
(D) Supplementary payment obligation including but not limited to adjustment fees and expenses, attorney fees and
expenses, *1067 court costs, interest and bond premiums.
(Emphasis added).
[¶ 23] Pursuant to the plain language of § 26–31–106(a)(i), WIGA is obligated to pay “covered claims.” “Covered claims”
are those claims the insurer would have been obligated to pay but for its insolvency. Section 26–31–103(a)(ii). The term
“covered claims” does not include “any amount due any insurer” nor does it include supplementary payment obligations,
such as attorney fees. Section 26–31–103(a)(ii)(A) and (D). Giving this language its plain and ordinary meaning, it appears
the legislature intended WIGA to pay only what an insurer would have paid had it remained solvent.
[¶ 24] The legislature’s intent that WIGA be obligated to pay only what a solvent insurer would have been obligated to pay is
further reflected in the plain language of § 26–31–106(a)(ii), stating that WIGA is “deemed the insurer to the extent of [the
insurer’s] obligation of the covered claims and to that extent has all rights, duties and obligations of the insolvent insurer as if
the insurer were not insolvent.” Similarly, § 26–31–106(c)(iv) states that WIGA is not obligated to pay more than the
insolvent insurer would have been obligated to pay. A solvent insurer would have been obligated to pay the claim amount
less the deductible.
[¶ 25] Section 26–31–110 provides in relevant part as follows:
(a) Any person recovering under this chapter assigns his rights under the policy to the association to
the extent of his recovery from the association. Any insured or claimant seeking the protection of this
chapter shall cooperate with the association to the same extent as that person would have been required
to cooperate with the insolvent insured. The association has no cause of action against the insolvent
insurer’s insured for any sums it has paid out except the causes of action as the insolvent insurer would
have had it if had paid those sums.
Giving this language its plain and ordinary meaning, WIGA has no cause of action against an insured for any sums it has paid
out except those the insurer would have had if it had been solvent.
[¶ 26] The plain and ordinary meaning of the statutory language clearly reflects that the legislature intended WIGA to be
obligated to pay the claims against WMC to the same extent PHICO would have been had it not become insolvent. Had
PHICO remained solvent, it would have been obligated to pay the claims less the deductibles. Pursuant to the terms of the
insurance contract, WMC was required to pay the deductibles. Had WMC refused to pay the deductibles, it would have been
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 9
Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
in breach of the insurance contract and a solvent PHICO could have sought recovery from WMC of the deductible amounts.
WIGA’s rights and duties are no more and no less than PHICO’s would have been. Construing the statutory language
otherwise would leave WMC in a better position as a result of WIGA’s involvement than it would have been if PHICO had
not been insolvent, a result we are not convinced the legislature intended.
[¶ 27] The parties have cited no case addressing an insurance guaranty association’s right to reimbursement of deductibles it
has paid after an insurer’s insolvency, and we have found none. However, there is wide support for construing insurance
guaranty association statutes, as we have, to mean that the rights and duties of such associations are limited to those explicitly
set forth in the statutes. In T & N PLC v. Pennsylvania Ins. Guar. Ass’n, 800 F. Supp. 1259, 1263 (E.D.Pa.1992) (citations
omitted), for example, the court stated:
[T]he courts have construed the Insurance Guaranty Act broadly to effect the purposes of the Act and to guarantee the
payment of covered claims. Where, however, “the Act explicitly denies a recovery ... or bars a cause of action ... [it] must
be strictly construed.” Thus, under the provisions of the Insurance Guaranty Act, it is clear that, contrary to T & N’s
contention, PIGA does not “stand in the shoes” of an insolvent insurer for all purposes.
Similarly, in Nebraska Life & Health Ins. Guar. Ass’n. v. Dobias, 247 Neb. 900, 531 N.W.2d 217, 220 (1995), the Court
stated: “[A] guarantor is not the legal successor of *1068 the insolvent insurer. Rather, as a statutory creation, the guarantor is
only liable to the extent provided by the statute creating the guarantor.”
[¶ 28] Construing its Insurance Guarantee Act, the court in Saylin v. Cal. Ins. Guar. Ass’n, 179 Cal. App. 3d 256, 224
Cal. Rptr. 493, 497 (1986) (citations omitted) concluded because:
“covered claims” are not coextensive with an insolvent insurer’s obligations under its policies, CIGA
cannot and does not “stand in the shoes” of the insolvent insurer for all purposes. Indeed, CIGA is
“expressly forbidden” to do so except where the claim at issue is a “covered claim.”
Similarly, the court in Virginia Property & Casualty Ins. Guaranty Ass’n v. International Ins. Co., 238 Va. 702, 385 S.E.2d
614, 616 (1989) stated:
The Act, considered as a whole, clearly indicates that the General Assembly did not intend that the Association merely
“step into the shoes” of the insolvent insurer.... [The Association] is not merely a solvent substitute for an insolvent
insurance company....
The insolvency of [the insurer] created a legal relationship between [the insured] and the Association which reflected the
terms of the [insurance] policy only to the extent they were not otherwise limited by the Act.”
[¶ 29] Thus, our conclusion that WIGA does not step into PHICO’s shoes except to the extent provided in the Wyoming act,
and is entitled to reimbursement of the deductibles just as PHICO would have been had it remained solvent, is consistent with
other courts’ interpretations of their insurance guaranty association acts. The 2004 default judgment declaring that PHICO
breached the insurance contract and WMC was not obligated to pay the deductible amounts to PHICO does not change this
result. The default judgment was entered after and as a result of PHICO’s insolvency. The judgment declaring that PHICO’s
insolvency constituted a breach of contract relieving WMC of the duty to pay PHICO has no effect upon WIGA’s statutory
rights and duties, which are limited expressly to those PHICO would have had if it were not insolvent. But for its insolvency,
PHICO would have been required to pay the claims against WMC and WMC would have been obligated to pay the
deductible amounts.
[¶ 30] The doctrine of res judicata simply does not apply to bar WIGA’s claim. WIGA was not a party to WMC’s earlier
action against PHICO nor does WIGA stand in the shoes of PHICO so that the judgment relieving WMC from paying the
deductibles to the insolvent PHICO likewise relieves WMC from paying the deductibles to WIGA. PHICO breached its
insurance contract with WMC and upon its breach WMC was relieved of paying PHICO. WIGA did not have or breach any
contract with WMC and the default judgment declaring that PHICO breached the contract did not pertain in any way to
WIGA.
[¶ 31] Unlike WMC’s action against PHICO, WIGA filed its action against WMC pursuant to the Insurance Guaranty Act
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Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
seeking payment from WMC for amounts WIGA paid on claims against WMC beyond what a solvent PHICO would have
been obligated to pay. WIGA and PHICO are not identical and were not in privity so as to make it appropriate to apply the
default judgment in the breach of contract action against WIGA to bar its claim under the Insurance Guaranty Act. The
subject matter of the earlier action was whether PHICO breached the insurance contract and WMC was relieved from paying
PHICO the deductible amounts. The subject matter of the present action was whether WIGA was entitled to recover the
deductible amounts from WMC under the Insurance Guaranty Act as PHICO could have done had it remained solvent.
PHICO’s capacity in the breach of contract action was different from WIGA’s capacity in the statutory action and their
capacities were different in terms of their entitlement to payment after PHICO’s insolvency of the deductible amounts. We
affirm the district court’s order granting summary judgment to WIGA on its complaint.
[¶ 32] We turn to consideration of WMC’s contention that the district court erred in granting summary judgment to *1069
[15]
WIGA on its counter-claim for a set-off against the judgment in the amount of attorney fees. After PHICO’s insolvency,
WMC paid the attorney fees at issue directly to the law firm for services it provided in defending WMC against claims
covered under the insurance policy. WMC asserts that but for the insolvency PHICO would have been required to reimburse
WMC for attorney fees it paid directly to its attorneys for defending the claims. Likewise, WMC contends, WIGA is
obligated for the attorney fees and a set-off against the judgment is an appropriate way to accomplish that.
[¶ 33] The district court found that the attorney fees at issue were incurred prior to PHICO’s insolvency. The district court
held that they were not “covered claims” under § 26–31–103(a)(ii)(D), which expressly excludes attorney fees. Because
WIGA is responsible only for covered claims, which does not include attorney fees, the district court concluded WIGA was
not responsible for the attorney fees.
[¶ 34] WMC contends the district court’s holding is incorrect because the legislature would not have intended to exclude
from “covered claims” the attorney fees the insurer would have been obligated to pay had it remained solvent. Looking at the
language of § 26–31–103(a)(ii)(D) excluding “supplementary payment obligation including ... attorney’s fees,” WMC
contends it must mean attorney fees arising out of something besides the insurance contract itself, for example, an attorney
fees award in a bad faith action. WMC asserts the words do not mean to exclude from covered claims attorney fees it incurred
in the defense of claims covered by the policy.
[¶ 35] WIGA contends the language is clear that attorney fees are excluded from “covered claims.” Both parties acknowledge
they have found no cases involving language identical to § 26–31–103(a)(ii)(D). However, WIGA cites Scherer v. Texas
Property and Cas. Ins. Guar. Ass’n, 958 S.W.2d 413 (Tex.Ct.App.1997), in which the court construed the Texas guaranty
association statute, which excluded from the definition of covered claims “supplementary payment obligations, including ...
attorney’s fees ... incurred prior to the determination that an insurer is [insolvent].” Except for the fact that the Texas
provision expressly excludes attorney fees incurred prior to the determination of insolvency, and the Wyoming provision
appears to exclude all attorney fees, the provisions are identical.
[¶ 36] In Scherer, the insureds asserted that because their policy included a duty to defend them from suit and that duty was
not fulfilled, their claim for attorney fees reimbursement was within the policy terms and was not a supplementary payment
obligation. Like WMC, the insureds in Scherer contended the exclusion related solely to other attorney fees not covered by
the policy’s “duty to defend” clause. The Texas court concluded the statutory language precluded the insureds’ recovery of
attorney fees, stating that the Texas guaranty act “shows the legislature capable of drawing stark lines with limited exceptions
regarding what types of claims and what amounts are compensable.” Id. at 414. The court concluded the exclusion applied to
all attorney fees incurred before the insurer’s insolvency for which it would have been liable. Id.
[¶ 37] The Wyoming Insurance Guaranty Association Act reflects that our legislature is also capable of drawing the line
between what is covered and what is not. As we have said, it is clear the legislature intended WIGA’s rights and duties to be
defined by the statutes and not to be defined by an insurance policy. Section 26–31–106(a)(i) makes it clear WIGA is
obligated to pay covered claims. Section 26–31–103(a)(ii) defines “covered claims” as unpaid claims arising out of and
within the coverage of an insurance policy. Section 26–31–103(a)(ii)(D) clearly excludes from “covered claims”
supplementary payment obligations, including attorney fees. Giving the statutory language its plain and ordinary meaning,
we conclude the legislature intended to exclude attorney fees from the definition of “covered claim.” Because §
26–31–106(a)(i) and (ii) provide that WIGA is obligated to pay “covered claims” and is deemed the insurer to the extent of
its obligation for the covered claims, we conclude the legislature did not *1070 intend for WIGA to be obligated for attorney
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Wyoming Medical Center, Inc. v. Wyoming Ins. Guar. Ass’n, 225 P.3d 1061 (2010)
2010 WY 21
fees.
[¶ 38] To construe the statutory language as WMC would have us do would require us to ignore the plain language chosen by
the legislature. We have said before that the omission of words from a statute is considered to be an intentional act by the
legislature and we will not read words into a statute when the legislature has chosen not to include them. Kennedy, ¶ 14, 205
P.3d at 1004. When statutory words are clear and unambiguous, a court risks an impermissible substitution of its own views,
or those of others, for the intent of the legislature if any effort is made to interpret or construe statutes on any basis other than
the language invoked by the legislature. Id. The definition of “covered claims” the legislature adopted expressly excludes
attorney fees. Absent a clear indication that the legislature did not intend the statute to mean what it says, we conclude WIGA
was not responsible for WMC’s attorney fees.
[¶ 39] We affirm the district court’s orders granting summary judgment in favor of WIGA.
Parallel Citations
2010 WY 21
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
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TAB 6
40 PA. CONS. STAT. § 221.23a
§ 221.23a. Policyholder collateral, deductible..., PA ST 40 P.S. § 221.23a
Purdon's Pennsylvania Statutes and Consolidated Statutes
Title 40 P.S. Insurance (Refs & Annos)
Chapter 1. Insurance Department (Refs & Annos)
Article V. Suspension of Business--Involuntary Dissolutions (Refs & Annos)
(c) Formal Proceedings
B. Liquidation
2. Powers and Duties of Liquidators and Others
40 P.S. § 221.23a
§ 221.23a. Policyholder collateral, deductible reimbursements and other policyholder obligations
Effective: June 28, 2004
Currentness
(a) Collateral shall not be considered an asset of the estate and shall be maintained and administered by the receiver as provided
in this section, notwithstanding any other provision of law or contract to the contrary.
(b) Subject to the provisions of this section, the collateral shall be used to secure the policyholder's obligation to fund or
reimburse claims payment within the agreed deductible amount.
(c) If a claim that is subject to a deductible agreement and secured by collateral is not covered by any guaranty association and
the policyholder is unwilling or unable to take over the handling and payment of the non-covered claims, the receiver shall adjust
and pay the non-covered claims utilizing the collateral but only to the extent the available collateral, after allocation under
subsection (d), is sufficient to pay all outstanding and anticipated claims. A claim against the collateral by a third-party claimant
is not a claim against the insolvent insurer's estate for the purposes of releasing the policyholder to the extent of applicable policy
coverage. If the collateral is exhausted and the insured is not able to provide funds to pay the remaining claims within the
deductible after all collection means against the insured have been exhausted, the receiver's obligation to pay such claims from
the collateral terminates, and the remaining claims shall be claims against the insurer's estate subject to complying with other
provisions of this article for the filing and allowance of claims. When the liquidator determines the collateral provided by the
insured is insufficient to pay all additional and anticipated claims against the insured, the liquidator may file a plan for equitably
allocating the collateral among claimants of the insured which provided the collateral, subject to court approval.
(d) To the extent that the receiver is holding collateral that secures other obligations of the policyholder to pay the insurer directly
or indirectly amounts that will become assets of the estate,such as reinsurance obligations under a captive reinsurance program
or premium obligations under a retrospectively rated insurance policy where the premium due is subject to adjustment based upon
actual loss experience, the receiver shall equitably allocate the collateral among such obligations and administer the collateral
allocated to the deductible agreement pursuant to this section. With respect to the collateral allocated to obligations under the
deductible agreement, if the collateral-secured reimbursement obligations are under more than one line of insurance, then the
collateral shall be equitably allocated among the various lines based upon the estimated ultimate exposure within the deductible
amount for each line. The receiver shall inform the guaranty associations of the method and details of all the foregoing
allocations.
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§ 221.23a. Policyholder collateral, deductible..., PA ST 40 P.S. § 221.23a
(e) Regardless of whether there is collateral, if the insurer has contractually agreed to allow the policyholder to fund its own
claims within the deductible amount pursuant to a deductible agreement either through the policyholder's own administration
of its claims or through the policyholder providing funds directly to a third-party administrator who administers the claims, the
receiver shall allow such funding arrangement to continue and, where applicable, will enforce such arrangements to the fullest
extent possible. The funding of such claims by the policyholder within the deductible amount will act as a bar to a claim for such
amount in the liquidation proceeding, including, but not limited to, a claim by the policyholder or the third-party claimant. The
funding will extinguish both the obligation, if any, of any guaranty association to pay such claims within the deductible amount,
as well as the obligation, if any, of the policyholder or the third-party administrator to reimburse the guaranty association. No
charge of any kind shall be made against a guaranty association on the basis of the policyholder funding of claims payment made
pursuant to the mechanism set forth in this subsection.
(f) (1) If the insurer has not contractually agreed to allow the policyholder to fund its own claims within the deductible amount,
to the extent a guaranty association is required by applicable State law to pay any claims for which the insurer would have been
entitled to reimbursement from the policyholder under the terms of the deductible agreement and to the extent the claims have
not been paid by the policyholder or by a third party, the receiver shall promptly bill the policyholder for such reimbursement,
and the policyholder will be obligated to pay such amount to the receiver for the benefit of the guaranty associations who paid
such claims. Neither the insolvency of the insurer nor its inability to perform any of its obligations under the deductible
agreement shall be a defense to the policyholder's reimbursements obligation under the deductible agreement. When the
policyholder reimbursements are collected, the receiver shall promptly reimburse such guaranty association for claims paid that
were subject to the deductible. If the policyholder fails to pay the amounts due within sixty days after such bill for such
reimbursements is due, the receiver shall use the collateral to the extent necessary to reimburse the guaranty association and, at
the same time, may pursue other collections efforts against the policyholder. If the policyholder reimbursements are not collected
due to the reduction in such reimbursements as provided in paragraph (2), the receiver shall nonetheless reimburse such guaranty
association as if such reimbursements had been collected. The receiver will obtain funds to reimburse a guaranty association
claim affected by paragraph (2) by subtracting from funds collected by the receiver for other policyholder claim reimbursements
under this paragraph amounts sufficient to reimburse the guaranty association affected by the application of paragraph (2).
Subtraction of funds shall be made against all guaranty associations, including the guaranty association affected by paragraph
(2) on the basis of the ratio stated in paragraph (3). If more than one guaranty association has a claim against the same collateral
and the available collateral, after allocation under subsection (d), along with billing and collection efforts, are together
insufficient to pay each guaranty association in full, then the receiver will prorate payments to each guaranty association based
upon the proportion of the amount of claims each guaranty association has paid bears to the total of all claims paid by such
guaranty associations.
(2) The obligation of a policyholder arising solely from a deductible agreement to reimburse the receiver for the benefit of one
or more guaranty associations under paragraph (1) for losses paid by one or more guaranty associations shall be reduced by the
amount of premium paid by or on behalf of the policyholder for one or more policies issued by a wholly owned affiliate or
subsidiary of the insurer, which affiliate or subsidiary was either licensed to do business in this Commonwealth or was an eligible
surplus lines insurer under Article XVI of the act of May 17, 1921 (P.L. 682, No. 284),1 known as “The Insurance Company Law
of 1921,” at the time of the issuance of such policies where such policies were purchased to fund the policyholder's obligation
to reimburse the insurer for deductibles under the deductible agreement, but in no event shall the reduction in liability be less
than ninety per centum of the total premiums paid to the insurer and such affiliate or subsidiary for such policies and coverage
provided under the related deductible agreement, provided that the policyholder's reimbursement obligation shall be reduced
only if: (i) the wholly owned affiliate or subsidiary was merged into the insurer that was a party to the deductible agreement
before the entry of a liquidation order against the insurer; (ii) the merger was approved by the commissioner; and (iii) the merger
took place before the enactment of this section.
(3) The reduction as a result of paragraph (2) in the amount of deductible reimbursements that one or more guaranty associations
would have been entitled to claim from a policyholder of the insurer under paragraph (1) shall be allocated by the receiver
pursuant to this paragraph pro rata among all guaranty associations receiving deductible reimbursements under paragraph (1).
The pro rata allocation among guaranty associations shall be based upon the ratio of: (i) claims paid and to be paid as estimated
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§ 221.23a. Policyholder collateral, deductible..., PA ST 40 P.S. § 221.23a
by each guaranty association that are referred to in paragraph (1) to (ii) the total amount of claims paid and to be paid estimated
by all the guaranty associations that are referred to in paragraph (1). Amounts used for the pro rata allocation shall be determined
after giving effect to the provisions referred to in subsection (k) relating to insured net worth.
(4) Any claim of the policyholder under one or more policies issued by the affiliate or subsidiary as described in paragraph (2)
is hereby waived except for those claims under policies that are not paid by a guaranty association as a covered claim or amounts
the policyholder has reimbursed a guaranty association under Article XVIII2 of “The Insurance Company Law of 1921” or similar
laws in other states.
(g) If the insurer has not contractually agreed to allow the policyholder to fund its own claims within the deductible amount and
a deductible reimbursement policy is present, to the extent a guaranty association is required by applicable State law to pay any
claims for which the insurer would have been entitled to reimbursement under the deductible reimbursement policy and to the
extent the claims have not been paid by the policyholder or by a third party, the receiver shall first make a good faith attempt
to recover reimbursements or collateral under the deductible reimbursement policy. Any resulting recoveries under the deductible
reimbursement policy shall by payable to the guaranty associations to the extent of claims paid within the deductible. To the
extent the receiver is unable in whole or in part to recover first under the deductible reimbursement policy for claims paid by
the guaranty associations, the receiver shall promptly bill the policyholder for the reimbursement, and the policyholder will be
obligated to pay the amount to the receiver for the benefit of the guaranty associations who paid the claims. The policyholder
shall retain any and all defenses that may be asserted in connection with the receiver's efforts to collect reimbursements from
the policyholder.
(h) If the insurer has not contractually agreed to allow the policyholder to fund its own claims within the deductible amount and
a deductible reimbursement policy is present and if a guaranty association is not paying claims for any reason for which the
insurer would have been entitled to reimbursement under the deductible reimbursement policy, to the extent claims covered under
a deductible reimbursement policy have been paid by the policyholder and sufficient information on the payments has been
provided by the policyholder to the receiver for purposes of billing under the deductible reimbursement policy, the receiver shall
make a good faith attempt to recover reimbursements or collateral under the deductible reimbursement policy from the insurer
of the deductible reimbursement policy. Any resulting recoveries under the deductible reimbursement policy shall be payable
to the policyholder.
(i) Receiver's duties and powers:
(1) The receiver is entitled to deduct from reimbursements owed to guaranty associations and/or policyholders under this section
or collateral to be returned to a policyholder reasonable actual expenses incurred in fulfilling the responsibilities under this
provision, not to exceed three per centum of the collateral or the total deductible reimbursements actually collected by the
receiver.
(2) With respect to claim payments made by any guaranty associations, the receiver shall promptly provide the guaranty
associations with a complete accounting of the receiver's deductible billing and collection activities, including, but not limited
to, copies of the policyholder billings when rendered, the reimbursements collected, the available amounts and use of collateral
for each account and any proration of payments when it occurs. The receiver's costs of accounting shall be included with
expenses referred to under this subsection and, together with other reasonable actual expenses, be subject to the overall limit
called for by this subsection. If the receiver fails to make a good faith effort within one hundred twenty days of receipt of claims
payment reports to collect reimbursements due from a policyholder under a deductible agreement based on claim payments made
by one or more guaranty associations, then after such one-hundred-twenty-day-period such guaranty associations may pursue
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§ 221.23a. Policyholder collateral, deductible..., PA ST 40 P.S. § 221.23a
collection from the policyholders directly on the same basis as the receiver and with the same rights and remedies and will report
any amounts so collected from each policyholder to the receiver. To the extent that guaranty associations pay claims within the
deductible amount but are not reimbursed by either the receiver under this section or by policyholder payments from the guaranty
association's own collection efforts, the guaranty association shall have a claim in the insolvent insurer's estate for such
unreimbursed claims payments.
(3) The receiver shall periodically adjust the collateral being held while the claims subject to the deductible agreement are run
off, provided that adequate collateral is maintained to secure the entire estimated ultimate obligation of the policyholder plus
a reasonable safety factor, and the receiver shall not be required to adjust the collateral more than once a year. The guaranty
associations and the policyholder shall be informed of all such collateral reviews, including, but not limited to, the basis for the
adjustment. Once all claims covered by the collateral have been paid and the receiver is satisfied that no new claims can be
presented, the receiver will release any remaining collateral to the policyholder.
(j) The Commonwealth Court shall have jurisdiction to resolve disputes arising under this section.
(k) Nothing in this section is intended to limit or adversely affect any right the guaranty associations may have under applicable
State law to obtain reimbursement from certain classes of policyholders for claims payments made by such guaranty associations
under policies of the insolvent insurer, or for related expenses the guaranty associations incur.
(l) This section will apply to all delinquency proceedings which are open and pending as of the effective date of this section.
(m) This section shall not apply to first party claims, or to claims funded by a guaranty association net of the deductible unless
subsection (e) applies.
(n) For purposes of this section, the following terms shall have the meanings given to them in this subsection:
“Collateral” shall mean collateral held by, for the benefit of or assigned to the insurer or subsequently to the receiver in order
to secure the obligations of a policyholder under a deductible agreement and also any collateral recovered or held by the receiver
that secured the obligations of a policyholder under a deductible reimbursement policy.
“Deductible agreement” shall include any combination of one or more policies, endorsements, contracts or security agreements
which provide for the policyholder to bear the risk of loss within a specified amount per each claim or occurrence covered under
a policy of insurance and may be subject to aggregate limit of policyholder reimbursement obligations as set forth in an
endorsement to a policy or in a program agreement.
“Deductible reimbursement policy” shall mean a policy other than one referred to in subsection (f)(2), purchased by the
policyholder to secure the policyholder's obligation to reimburse the insurer for deductibles under the deductible agreement.
“Non-covered claims” shall mean a claim that is subject to a deductible agreement, may be secured by collateral and is not
covered by a guaranty association.
Credits
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§ 221.23a. Policyholder collateral, deductible..., PA ST 40 P.S. § 221.23a
1921, May 17, P.L. 789, art. V, § 523.1, added 2004, June 28, P.L. 443, No. 46, § 1, imd. effective.
Footnotes
1 40 P.S. § 991.1601 et seq.
2 40 P.S. § 991.1801 et seq.
40 P.S. § 221.23a, PA ST 40 P.S. § 221.23a
Current through 2014 Regular Session Acts 1 to 84
End of Document © 2014 Thomson Reuters. No claim to original U.S. Government Works.
© 2014 Thomson Reuters. No claim to original U.S. Government Works. 5
TAB 7
2004 Pa. Legis. Serv. 2004-46 (S.B. No. 815)
INSURANCE—LIQUIDATIONS—POLICYHOLDER..., 2004 Pa. Legis. Serv....
2004 Pa. Legis. Serv. Act 2004-46 (S.B. 815) (PURDON'S)
PENNSYLVANIA 2004 LEGISLATIVE SERVICE
One Hundred Eighty-Eighth Regular Session of the General Assembly
Additions are indicated by Text; deletions by
Text. Changes in tables are made but not highlighted.
ACT NO. 2004–46
S.B. No. 815
INSURANCE—LIQUIDATIONS—POLICYHOLDER COLLATERAL
AN ACT Amending the act of May 17, 1921 (P.L. 789, No. 285), entitled, as amended, “An act relating to
insurance; establishing an insurance department; and amending, revising, and consolidating the law relating to
the licensing, qualification, regulation, examination, suspension, and dissolution of insurance companies, Lloyds
associations, reciprocal and inter–insurance exchanges, and certain societies and orders, the examination and
regulation of fire insurance rating bureaus, and the licensing and regulation of insurance agents and brokers;
the service of legal process upon foreign insurance companies, associations or exchanges; providing penalties,
and repealing existing laws,” providing for policyholder collateral, for deductible reimbursements and for other
policyholder obligations.
The General Assembly of the Commonwealth of Pennsylvania hereby enacts as follows:
Section 1. The act of May 17, 1921 (P.L. 789, No. 285), known as The Insurance Department Act of 1921, is
amended by adding a section to read:
<< PA ST 40 P.S. § 221.23a >>
Section 523.1. Policyholder Collateral, Deductible Reimbursements and Other Policyholder Obligations 1
(a) Collateral shall not be considered an asset of the estate and shall be maintained and administered by the
receiver as provided in this section, notwithstanding any other provision of law or contract to the contrary.
(b) Subject to the provisions of this section, the collateral shall be used to secure the policyholder's obligation to
fund or reimburse claims payment within the agreed deductible amount.
(c) If a claim that is subject to a deductible agreement and secured by collateral is not covered by any guaranty
association and the policyholder is unwilling or unable to take over the handling and payment of the non-covered
claims, the receiver shall adjust and pay the non-covered claims utilizing the collateral but only to the extent the
available collateral, after allocation under subsection (d), is sufficient to pay all outstanding and anticipated claims.
A claim against the collateral by a third-party claimant is not a claim against the insolvent insurer's estate for the
purposes of releasing the policyholder to the extent of applicable policy coverage. If the collateral is exhausted and
the insured is not able to provide funds to pay the remaining claims within the deductible after all collection means
against the insured have been exhausted, the receiver's obligation to pay such claims from the collateral terminates,
and the remaining claims shall be claims against the insurer's estate subject to complying with other provisions
of this article for the filing and allowance of claims. When the liquidator determines the collateral provided by
the insured is insufficient to pay all additional and anticipated claims against the insured, the liquidator may file a
plan for equitably allocating the collateral among claimants of the insured which provided the collateral, subject
to court approval.
(d) To the extent that the receiver is holding collateral that secures other obligations of the policyholder to pay the
insurer directly or indirectly amounts that will become assets of the estate,such as reinsurance obligations under
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a captive reinsurance program or premium obligations under a retrospectively rated insurance policy where the
premium due is subject to adjustment based upon actual loss experience, the receiver shall equitably allocate the
collateral among such obligations and administer the collateral allocated to the deductible agreement pursuant to
this section. With respect to the collateral allocated to obligations under the deductible agreement, if the collateral-
secured reimbursement obligations are under more than one line of insurance, then the collateral shall be equitably
allocated among the various lines based upon the estimated ultimate exposure within the deductible amount for
each line. The receiver shall inform the guaranty associations of the method and details of all the foregoing
allocations.
(e) Regardless of whether there is collateral, if the insurer has contractually agreed to allow the policyholder
to fund its own claims within the deductible amount pursuant to a deductible agreement either through the
policyholder's own administration of its claims or through the policyholder providing funds directly to a third-
party administrator who administers the claims, the receiver shall allow such funding arrangement to continue
and, where applicable, will enforce such arrangements to the fullest extent possible. The funding of such claims
by the policyholder within the deductible amount will act as a bar to a claim for such amount in the liquidation
proceeding, including, but not limited to, a claim by the policyholder or the third-party claimant. The funding will
extinguish both the obligation, if any, of any guaranty association to pay such claims within the deductible amount,
as well as the obligation, if any, of the policyholder or the third-party administrator to reimburse the guaranty
association. No charge of any kind shall be made against a guaranty association on the basis of the policyholder
funding of claims payment made pursuant to the mechanism set forth in this subsection.
(f) (1) If the insurer has not contractually agreed to allow the policyholder to fund its own claims within the
deductible amount, to the extent a guaranty association is required by applicable State law to pay any claims
for which the insurer would have been entitled to reimbursement from the policyholder under the terms of the
deductible agreement and to the extent the claims have not been paid by the policyholder or by a third party, the
receiver shall promptly bill the policyholder for such reimbursement, and the policyholder will be obligated to
pay such amount to the receiver for the benefit of the guaranty associations who paid such claims. Neither the
insolvency of the insurer nor its inability to perform any of its obligations under the deductible agreement shall be
a defense to the policyholder's reimbursements obligation under the deductible agreement. When the policyholder
reimbursements are collected, the receiver shall promptly reimburse such guaranty association for claims paid
that were subject to the deductible. If the policyholder fails to pay the amounts due within sixty days after such
bill for such reimbursements is due, the receiver shall use the collateral to the extent necessary to reimburse
the guaranty association and, at the same time, may pursue other collections efforts against the policyholder. If
the policyholder reimbursements are not collected due to the reduction in such reimbursements as provided in
paragraph (2), the receiver shall nonetheless reimburse such guaranty association as if such reimbursements had
been collected. The receiver will obtain funds to reimburse a guaranty association claim affected by paragraph
(2) by subtracting from funds collected by the receiver for other policyholder claim reimbursements under this
paragraph amounts sufficient to reimburse the guaranty association affected by the application of paragraph (2).
Subtraction of funds shall be made against all guaranty associations, including the guaranty association affected
by paragraph (2) on the basis of the ratio stated in paragraph (3). If more than one guaranty association has a claim
against the same collateral and the available collateral, after allocation under subsection (d), along with billing
and collection efforts, are together insufficient to pay each guaranty association in full, then the receiver will
prorate payments to each guaranty association based upon the proportion of the amount of claims each guaranty
association has paid bears to the total of all claims paid by such guaranty associations.
(2) The obligation of a policyholder arising solely from a deductible agreement to reimburse the receiver for
the benefit of one or more guaranty associations under paragraph (1) for losses paid by one or more guaranty
associations shall be reduced by the amount of premium paid by or on behalf of the policyholder for one or more
policies issued by a wholly owned affiliate or subsidiary of the insurer, which affiliate or subsidiary was either
licensed to do business in this Commonwealth or was an eligible surplus lines insurer under Article XVI of the
act of May 17, 1921 (P.L. 682, No. 284), known as “The Insurance Company Law of 1921,” at the time of the
issuance of such policies where such policies were purchased to fund the policyholder's obligation to reimburse
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the insurer for deductibles under the deductible agreement, but in no event shall the reduction in liability be less
than ninety per centum of the total premiums paid to the insurer and such affiliate or subsidiary for such policies
and coverage provided under the related deductible agreement, provided that the policyholder's reimbursement
obligation shall be reduced only if: (i) the wholly owned affiliate or subsidiary was merged into the insurer that
was a party to the deductible agreement before the entry of a liquidation order against the insurer; (ii) the merger
was approved by the commissioner; and (iii) the merger took place before the enactment of this section.
(3) The reduction as a result of paragraph (2) in the amount of deductible reimbursements that one or more
guaranty associations would have been entitled to claim from a policyholder of the insurer under paragraph (1)
shall be allocated by the receiver pursuant to this paragraph pro rata among all guaranty associations receiving
deductible reimbursements under paragraph (1). The pro rata allocation among guaranty associations shall be
based upon the ratio of: (i) claims paid and to be paid as estimated by each guaranty association that are referred
to in paragraph (1) to (ii) the total amount of claims paid and to be paid estimated by all the guaranty associations
that are referred to in paragraph (1). Amounts used for the pro rata allocation shall be determined after giving
effect to the provisions referred to in subsection (k) relating to insured net worth.
(4) Any claim of the policyholder under one or more policies issued by the affiliate or subsidiary as described in
paragraph (2) is hereby waived except for those claims under policies that are not paid by a guaranty association
as a covered claim or amounts the policyholder has reimbursed a guaranty association under Article XVIII of
“The Insurance Company Law of 1921” or similar laws in other states.
(g) If the insurer has not contractually agreed to allow the policyholder to fund its own claims within the
deductible amount and a deductible reimbursement policy is present, to the extent a guaranty association is
required by applicable State law to pay any claims for which the insurer would have been entitled to reimbursement
under the deductible reimbursement policy and to the extent the claims have not been paid by the policyholder
or by a third party, the receiver shall first make a good faith attempt to recover reimbursements or collateral
under the deductible reimbursement policy. Any resulting recoveries under the deductible reimbursement policy
shall by payable to the guaranty associations to the extent of claims paid within the deductible. To the extent
the receiver is unable in whole or in part to recover first under the deductible reimbursement policy for claims
paid by the guaranty associations, the receiver shall promptly bill the policyholder for the reimbursement, and the
policyholder will be obligated to pay the amount to the receiver for the benefit of the guaranty associations who
paid the claims. The policyholder shall retain any and all defenses that may be asserted in connection with the
receiver's efforts to collect reimbursements from the policyholder.
(h) If the insurer has not contractually agreed to allow the policyholder to fund its own claims within the
deductible amount and a deductible reimbursement policy is present and if a guaranty association is not paying
claims for any reason for which the insurer would have been entitled to reimbursement under the deductible
reimbursement policy, to the extent claims covered under a deductible reimbursement policy have been paid by
the policyholder and sufficient information on the payments has been provided by the policyholder to the receiver
for purposes of billing under the deductible reimbursement policy, the receiver shall make a good faith attempt to
recover reimbursements or collateral under the deductible reimbursement policy from the insurer of the deductible
reimbursement policy. Any resulting recoveries under the deductible reimbursement policy shall be payable to
the policyholder.
(i) Receiver's duties and powers:
(1) The receiver is entitled to deduct from reimbursements owed to guaranty associations and/or policyholders
under this section or collateral to be returned to a policyholder reasonable actual expenses incurred in fulfilling
the responsibilities under this provision, not to exceed three per centum of the collateral or the total deductible
reimbursements actually collected by the receiver.
(2) With respect to claim payments made by any guaranty associations, the receiver shall promptly provide the
guaranty associations with a complete accounting of the receiver's deductible billing and collection activities,
including, but not limited to, copies of the policyholder billings when rendered, the reimbursements collected,
the available amounts and use of collateral for each account and any proration of payments when it occurs. The
receiver's costs of accounting shall be included with expenses referred to under this subsection and, together
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with other reasonable actual expenses, be subject to the overall limit called for by this subsection. If the receiver
fails to make a good faith effort within one hundred twenty days of receipt of claims payment reports to collect
reimbursements due from a policyholder under a deductible agreement based on claim payments made by one
or more guaranty associations, then after such one-hundred-twenty-day-period such guaranty associations may
pursue collection from the policyholders directly on the same basis as the receiver and with the same rights and
remedies and will report any amounts so collected from each policyholder to the receiver. To the extent that
guaranty associations pay claims within the deductible amount but are not reimbursed by either the receiver under
this section or by policyholder payments from the guaranty association's own collection efforts, the guaranty
association shall have a claim in the insolvent insurer's estate for such unreimbursed claims payments.
(3) The receiver shall periodically adjust the collateral being held while the claims subject to the deductible
agreement are run off, provided that adequate collateral is maintained to secure the entire estimated ultimate
obligation of the policyholder plus a reasonable safety factor, and the receiver shall not be required to adjust the
collateral more than once a year. The guaranty associations and the policyholder shall be informed of all such
collateral reviews, including, but not limited to, the basis for the adjustment. Once all claims covered by the
collateral have been paid and the receiver is satisfied that no new claims can be presented, the receiver will release
any remaining collateral to the policyholder.
(j) The Commonwealth Court shall have jurisdiction to resolve disputes arising under this section.
(k) Nothing in this section is intended to limit or adversely affect any right the guaranty associations may have
under applicable State law to obtain reimbursement from certain classes of policyholders for claims payments
made by such guaranty associations under policies of the insolvent insurer, or for related expenses the guaranty
associations incur.
(l) This section will apply to all delinquency proceedings which are open and pending as of the effective date
of this section.
(m) This section shall not apply to first party claims, or to claims funded by a guaranty association net of the
deductible unless subsection (e) applies.
(n) For purposes of this section, the following terms shall have the meanings given to them in this subsection:
“Collateral” shall mean collateral held by, for the benefit of or assigned to the insurer or subsequently to the
receiver in order to secure the obligations of a policyholder under a deductible agreement and also any collateral
recovered or held by the receiver that secured the obligations of a policyholder under a deductible reimbursement
policy.
“Deductible agreement” shall include any combination of one or more policies, endorsements, contracts or
security agreements which provide for the policyholder to bear the risk of loss within a specified amount per each
claim or occurrence covered under a policy of insurance and may be subject to aggregate limit of policyholder
reimbursement obligations as set forth in an endorsement to a policy or in a program agreement.
“Deductible reimbursement policy” shall mean a policy other than one referred to in subsection (f)(2), purchased
by the policyholder to secure the policyholder's obligation to reimburse the insurer for deductibles under the
deductible agreement.
“Non-covered claims” shall mean a claim that is subject to a deductible agreement, may be secured by collateral
and is not covered by a guaranty association.
Section 2. This act shall take effect immediately.
Approved June 28, 2004.
1
40 P.S. § 221.23a.
End of Document © 2011 Thomson Reuters. No claim to original U.S. Government Works.
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 4
TAB 8
Canal Ins. Co. v. Pro Search, 648 S.E.2d 497, 498 (Ga. Ct. App. 2007)
Canal Ins. Co. v. Pro Search, 286 Ga.App. 164 (2007)
648 S.E.2d 497, 07 FCDR 2094
KeyCite Yellow Flag - Negative Treatment
Distinguished by Williams Service Group, LLC v. National Union Fire Ins. Co. of Pittsburgh, N.D.Ga., June 20, 2011
286 Ga.App. 164
Court of Appeals of Georgia.
CANAL INSURANCE COMPANY
v.
PRO SEARCH et al.
No. A07A0477. | June 26, 2007. | Certiorari Denied Nov. 5, 2007.
Synopsis
Background: Workers' compensation insurance carrier brought action against insured to recover amounts that carrier paid
regarding insured's deductibles. The State Court, Cobb County, Collins, J., granted insured's motion for summary judgment.
Carrier appealed.
[Holding:] The Court of Appeals, Andrews, P.J., held that claim accrued, and limitations period began to run, when carrier
demanded reimbursement.
Reversed.
West Headnotes (3)
[1] Limitation of Actions Demand for Performance of Contract
Workers' compensation insurance carrier's breach-of-contract claim against insured, which allegedly failed to
reimburse carrier for carrier's payment of insured's deductibles, accrued, and limitations period began to run, when
carrier demanded reimbursement, not 30 days after payment on deductible was made by carrier; policy provided that
insured was required to reimburse carrier within 30 days after carrier sent notice that payment was due.
Cases that cite this headnote
[2] Limitation of Actions Liability Payable on Demand
Where a debt is not at once due and no time is specified for its payment, it is due and payable in a reasonable time or
upon demand subsequently made, and the statute of limitations does not begin to run until after demand.
1 Cases that cite this headnote
[3] Limitation of Actions Time for Making Demand
For purposes of statute of limitations regarding debt that is not at once due and no time is specified for its payment,
demand for payment, which begins limitations period, must be made within a reasonable time, which is ordinarily the
period of the statute of limitations, but where the parties contemplated a delay in making the demand to some indefinite
time in the future, the statutory period for bringing the action is not controlling as to the question of reasonable time.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1
Canal Ins. Co. v. Pro Search, 286 Ga.App. 164 (2007)
648 S.E.2d 497, 07 FCDR 2094
2 Cases that cite this headnote
Attorneys and Law Firms
**497 Brian D. Hardison, Powder Springs, for appellant.
Proctor, Chambers & Hutchins, Robert J. Proctor, Bradley A. Hutchins, Adam C. Caskey, Carlock, Copeland, Semler & Stair,
Edward T. McAfee, Atlanta, for appellees.
Opinion
ANDREWS, Presiding Judge.
*164 Canal Insurance Company appeals from the trial court's grant of Pro Search and Pro Temps's (Pro Search) motion for
summary judgment. The trial court held that Canal's claim for amounts due under its contract to provide workers' compensation
insurance to Pro Search was barred by the statute of limitation. Because the law in Georgia is that the statute of limitation begins
to run at the time contemplated by the contract, which in this case is 30 days after notice was sent of the amount due, we reverse.
“Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter
of law. OCGA § 9-11-56(c).” Matjoulis v. Integon Gen. Ins. Corp., 226 Ga.App. 459(1), 486 S.E.2d 684 (1997). We review
the grant or denial of summary judgment de novo, construing the evidence in favor of the nonmovant. Id.
Although Canal's brief on appeal is lacking and fails to provide any record cites whatsoever, it appears that the underlying facts
in this case are largely undisputed. 1 The record shows that Canal and Pro Search contracted for Canal to provide workers'
compensation insurance for Pro Search beginning on June 9, 1997. The policy at issue provided that Canal would pay the
applicable $2,500 deductible on each claim, and would in turn bill Pro Search for reimbursement. Canal billed Pro Search
$42,755.54 on November 25, 2002. Pro **498 Search refused to pay and Canal sued. Pro Search moved for summary judgment,
contending that the statute of limitation had run on the claim. The trial court granted the motion and this appeal followed.
1 Pro Search acknowledged that it did not dispute the amount of the claim.
The contract between Canal and Pro Search provided: “We will pay the deductible amount for you to the claimant or provider
of services, but you must reimburse us within 30 days after we sent you notice that payment is due.”
[1] *165 Accordingly, the issue is when does the statute of limitation begin to run against an action on a contract which
contemplates an actual demand. The trial court held that the statute of limitation began to run 30 days after each payment on the
deductible was made by Canal, because Canal could have “successfully brought suit within 30 days of payment to the medical
providers as to each claim.” This is incorrect. Under the clear language of the contract, payment was not due until 30 days
after Canal sent notice to Pro Search of the amount due. Accordingly, there could have been no suit under the contract until
notice was sent.
[2] [3] “Where a debt is not at once due and no time is specified for its payment, it is due and payable in a reasonable time or
upon demand subsequently made and the statute of limitations does not begin to run until after demand.” Scarboro v. Ralston
Purina Co., 160 Ga.App. 576, 578, 287 S.E.2d 623 (1981).
Where, by the contract of the parties, express or implied, the money or debt which is the subject-matter
thereof is payable only upon a demand in fact therefor, the statute of limitations does not begin to run
until an actual demand for payment is made. The demand, however, must be made within a reasonable
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2
Canal Ins. Co. v. Pro Search, 286 Ga.App. 164 (2007)
648 S.E.2d 497, 07 FCDR 2094
time, which is ordinarily the period of the statute of limitations; but where the parties contemplated a
delay in making the demand to some indefinite time in the future, the statutory period for bringing the
action is not controlling as to the question of reasonable time.
Smith v. Early, 60 Ga.App. 506, 511, 3 S.E.2d 913 (1939).
Kicklighter v. Woodward, 267 Ga. 157, 476 S.E.2d 248 (1996), cited by Pro Search, is not helpful. That case states: “When
money is loaned and there is no agreement as to the time of repayment, the amount loaned is in law due immediately, and the
statute of limitations begins to run at once in favor of the borrower.” (Emphasis supplied.) Id. at 159, 476 S.E.2d 248. Clearly,
in the instant case, the amount was not due immediately because the agreement provided otherwise.
Here, the contract did not provide that the demand had to be made at any particular time, and Canal made its claim while
payments under the contract were ongoing. Therefore, the statute of limitation began to run at the time of the demand. See
Ranwal Properties, LLC v. John H. Harland Co., 285 Ga.App. 532, 646 S.E.2d 730 (2007). Because the court erred in
determining when the statute of limitation began to run on Canal's claim, the trial court's grant of summary judgment to Pro
Search is reversed.
Judgment reversed.
ELLINGTON and ADAMS, JJ., concur.
All Citations
286 Ga.App. 164, 648 S.E.2d 497, 07 FCDR 2094
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3
TAB 9
AMS Constr. Co., Inc. v. Reliance Ins. Co.,
No. Civ.A. 04-CV-2097, 2004 WL 2600792 (E.D. Penn. Nov. 15, 2004)
AMS Const. Co. Inc. v. Reliance Ins. Co., Not Reported in F.Supp.2d (2004)
2004 WL 2600792
Only the Westlaw citation is currently available.
United States District Court,
E.D. Pennsylvania.
AMS CONSTRUCTION COMPANY, INC. d/b/a AMS Staff Leasing, et al., Plaintiff
v.
RELIANCE INSURANCE COMPANY, (In Liquidation) Defendant.
No. Civ.A. 04-CV-2097. | Nov. 15, 2004.
Attorneys and Law Firms
Peter A. Vonmehren, Spector, Gadon & Rosen, P.C., Philadelphia, PA, for Plaintiffs.
William E. Mahoney, Jr., Stradley, Ronon, Stevens & Young, Philadelphia, PA, for Defendant.
Opinion
OPINION
STENGEL, J.
*1 On May 14, 2004, Texas corporations AMS Construction Company, Inc., and Breckenridge Enterprises, Inc.
(“Plaintiffs”) filed a complaint in this court against Reliance Insurance Company (“Defendant”), an insolvent
Pennsylvania corporation, 1 for breach of contract and declaratory relief pursuant to 28 U.S.C. §§ 2201-02. Florida
Workers' Compensation Insurance Guaranty Association (“Florida Guaranty”), a non-profit Florida corporation,
has filed a motion pursuant to Federal Rule of Civil Procedure (“Fed.R.Civ.P.”) 24(a)(2) requesting the court
to allow it to intervene as of right as a defendant/counterplaintiff in this action, or in the alternative, for leave
to intervene permissively pursuant to Fed.R.Civ.P. 24(b). For the reasons discussed in this opinion, I will grant
Florida Guaranty's motion for leave to intervene permissively.
1 On October 3, 2001, an order of liquidation was entered by the Commonwealth Court of Pennsylvania, adjudicating
Defendant to be insolvent. On the same day, the Honorable M. Diane Koken, Pennsylvania Commissioner of
Insurance, was appointed statutory liquidator of Defendant, with power to resolve its insolvent estate.
BACKGROUND
In the 1990's, Plaintiffs entered into an insurance program with Defendant from whom they purchased a series
of workers' compensation policies. In 1998, Breckenridge Enterprises purchased a Philadelphia Life Insurance
Company accident insurance policy (the “Reinsurance Policy”) that reinsured a certain amount of the risk covered
by the workers' compensation policies making up the Defendant's program.
This case stems from a Settlement, Release and Joint Prosecution Agreement (the “Agreement”) entered into on
May 29, 2003 between the parties to an action in the United States District Court for the Northern District of
Texas. (Breckenridge Enterprises, Inc., et al. v. Philadelphia Life Insurance Company, et al.) The Agreement
was a contract that controlled the joint effort of Plaintiffs and Defendant to recover money owed under the
Reinsurance Policy. Pursuant to the Agreement, Defendant received approximately $15 million made up of
amounts recovered under the Reinsurance Policy and of collateral specifically held by Southwest Underwriters
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 1
AMS Const. Co. Inc. v. Reliance Ins. Co., Not Reported in F.Supp.2d (2004)
to secure Plaintiffs' obligation to fund or reimburse claims paid under Defendant's workers' compensation and
general liability programs.
In their complaint, Plaintiffs allege that Defendant breached its obligations under the Agreement by failing to
reimburse Plaintiffs for Defendant's portion of litigation fees and costs related to the Texas action. Plaintiffs
also claim that Defendant waived its right to seek deductible reimbursements under the express language of the
Agreement. Plaintiffs seek a declaration from the court holding that they do not have an obligation to reimburse
Defendant for the deductibles under the policies.
Defendant filed an answer, affirmative defenses, and a four-count counterclaim asserting breach of contract, unjust
enrichment, equitable subrogation, and a request for declaratory relief in connection with the Agreement.
Florida Guaranty exists pursuant to Florida's enactment of the Uniform Insurer Liquidation Act, Chapter 631
of the Florida Statutes, which provides a mechanism for the prompt payment of workers' compensation claims
incurred by insolvent insurers. Its main purpose is to avoid financial loss to injured Florida workers due to the
insolvency of any workers' compensation insurer. Pennsylvania has also adopted such a statute. See 40 P.S. §§
211-221.63. Prior to its insolvency, Defendant wrote workers' compensation coverage in Florida. At the time of
the order of liquidation, there were unpaid claims of injured Florida workers whose employers were insured by
Defendant. Since the order of liquidation, new workers' compensation claims have been brought and are being
paid by Florida Guaranty.
*2 Florida Guaranty seeks leave to intervene in this matter in order to assert and protect its statutorily-granted
right to recover from Plaintiffs' insurance policy deductible reimbursements due pursuant to Plaintiffs' obligations
under the workers' compensation policies issued by Defendant. Florida Guaranty contends that Plaintiffs are
trying to extinguish Florida Guaranty's right to the deductible reimbursements by claiming that Defendant waived,
settled, discharged, and/or released Plaintiffs' deductible reimbursement obligations pursuant to the Agreement.
In their responses, Plaintiffs vehemently oppose the motion, and Defendant supports it indicating that Florida
Guaranty's participation in the case would be appropriate and beneficial.
DISCUSSION
Motions to intervene are governed by Fed.R.Civ.P. 24. In this case, Florida Guaranty seeks to intervene under
Rule 24(a)(2), which provides that intervention shall be permitted as of right “when the applicant claims an interest
relating to the property or transaction which is the subject of the action and the applicant is so situated that the
disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest,
unless the applicant's interest is adequately represented by existing parties.” Fed.R.Civ.P. 24(a)(2). The Third
Circuit has interpreted Rule 24(a)(2) to include four requirements for intervention as of right: (1) the intervention
must be timely; (2) the intervenor must have a sufficient interest relating to the subject of the action; (3) the
action must potentially impede the applicant's ability to protect its interest; and (4) the existing parties must not
adequately represent the applicant's interest. Mountain Top Condominium Ass'n v. Dave Stabbert Master Builder,
Inc., 72 F.3d 361, 366 (3d Cir.1995) (quoting Harris v. Pernsley, 820 F.2d 592, 596 (3d Cir.1987)).
Whether a moving party claims intervention as of right or permissively, Rule 24 requires that the application be
timely, a determination to be made from all the circumstances. NAACP v. New York, 413 U.S. 345, 365-366, 93
S. Ct. 2591, 37 L. Ed. 2d 648 (1973). There are three factors which must be considered in evaluating the timeliness
of a motion to intervene: 1) how far the proceedings have gone when the movant seeks to intervene; 2) prejudice
which resultant delay might cause to other parties; and 3) the reason for the delay. Commonwealth v. Rizzo, 530
F.2d 501, 506 (3d Cir.1976).
Here, the case was filed in this court in May 2004; Plaintiffs' response to Defendant's counterclaim was filed in
August 2004; the motion itself was filed in October 2004; discovery is not set to finish until November 2004;
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 2
AMS Const. Co. Inc. v. Reliance Ins. Co., Not Reported in F.Supp.2d (2004)
and there has been no ruling from the court which has affected the interest of the other parties. Moreover, Florida
Guaranty does not seek to add new issues to the case which even at this early stage might result in prejudice to the
other parties. As a reason for its slight delay in filing this motion, Florida Guaranty claims that its status as a real
party in interest was only recently clarified when the Pennsylvania Legislature signed 40 P.S. § 221.23a into law
on June 28, 2004. Thus, this motion to intervene is timely, and satisfies the first requirement of Rule 24(a)(2).
*3 Next, by having a sufficient interest relating to the subject of this action, Florida Guaranty also satisfies the
second requirement of the rule. An intervenor's interest is sufficient if it is “significantly protectable.” Donaldson
v. United States, 400 U.S. 517, 531, 91 S. Ct. 534, 27 L. Ed. 2d 580 (1971). A “significantly protectable” interest is
“a legal interest as distinguished from interests of a general and indefinite character.” Harris v. Pernsley, 820 F.2d
at 601. Accordingly, a mere economic interest in the outcome of a particular litigation is insufficient to support
a motion to intervene. United States v. Alcan Aluminum, Inc., 25 F.3d 1174, 1185 (3d Cir.1984). An intervenor's
interest in a specific monetary fund, however, is sufficient to render intervention proper in a case affecting that
fund. Mountain Top, 72 F.3d at 366 (funds deposited with district court were assets of an express trust, of which
the individual intervenors are the intended beneficiaries).
Here, Florida Guaranty has demonstrated a particular interest in the specific funds at issue in this case, rather than
a general economic interest in its outcome. Having paid workers' compensation claims of Plaintiffs' employees,
Florida Guaranty claims a “direct and non-contingent” interest in the deductible reimbursements that are at issue
here. In their response to this motion, Plaintiffs concede that Florida Guaranty has an existing statutory right
to obtain its fair share of any funds collected by the receiver under 40 P.S. §§ 221.23a(f) and (g). These two
statutory provisions provide that the receiver must reimburse state guaranty associations for claims payments
within a deductible amount from any money collected from collateral and/or a deductible reimbursement policy.
A policyholder's deductible reimbursements under policies issued by an insolvent insurer, such as the deductible
reimbursements here, as well as the collateral provided to secure such policyholder's reimbursement obligations,
never become assets of the estate of the insolvent insurer, and are payable to the guaranty associations if the
guaranty associations paid claims under the policies. As discussed above, the Reinsurance Policy funded the $15
million payment to Defendant pursuant to the Agreement. Under this set of facts, Florida Guaranty has a sufficient
interest in the subject of the action, and thus satisfies the second requirement of the rule.
Nevertheless, it is at the third and fourth requirements of Rule 24(a)(2) that the success of Florida Guaranty's
application becomes doubtful. As stated above, the action must potentially impede Florida Guaranty's ability to
protect its interest. Proposed intervenors must demonstrate that their interest might become affected or impaired,
as a practical matter, by the disposition of the action in their absence. United States v. Alcan Aluminum, Inc., 25
F.2d at 1185 n. 15.
Florida Guaranty insists that it is so situated that the disposition of this case may as a practical matter impair or
impede its ability to protect its interest in the deductible reimbursements. Hypothesizing that if this court were to
rule that Defendant waived its right to receive the deductible reimbursements retrospectively and/or prospectively,
Florida Guaranty is concerned that its ability to be reimbursed for claims would likely be impaired without its
being heard. For example, if Florida Guaranty were to bring an independent action against Plaintiffs to collect
its fair share of the reimbursements, Plaintiffs could argue that Florida Guaranty's case was somehow precluded
by the outcome of the instant case.
*4 However, the disposition of this case should have no effect on Florida Guaranty's right to reimbursement from
the already-existing fund which Defendant received as a result of the Agreement. A review of the language of
Pennsylvania's statute establishes that a scheme is in place whereby the Pennsylvania Commissioner, as receiver,
has the primary duty to collect unpaid deductible amounts from a policyholder under Pennsylvania law:
With respect to claim payments made by any guaranty associations, the receiver shall promptly provide the
guaranty associations with a complete accounting of the receiver's deductible billing and collection activities,
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including but not limited to copies of the policyholder billings when rendered, the reimbursements collected,
the available amounts and use of collateral for each account and any proration of payments when it occurs. The
receiver's costs of accounting shall be included with expenses referred to under this subsection and, together
with other reasonable actual expenses, be subject to the overall limit called for by this subsection. If the receiver
fails to make a good faith effort within one hundred twenty days of receipt of claims payment reports to collect
reimbursements due from a policyholder under a deductible agreement based on claims payments made by one
or more guaranty associations, then after such one-hundred-twenty-day period such guaranty associations may
pursue collection directly on the same basis as the receiver and with the same rights and remedies and will
report any amounts so collected from each policyholder to the receiver. To the extent that guaranty associations
pay claims within the deductible amount but are not reimbursed by either the receiver under this section or by
policyholder payments from the guaranty association's own collection efforts, the guaranty association shall have
a claim in the insolvent insurer's estate for such unreimbursed claims payments.
40 P.S. § 221.23a(i)(2)(emphasis added).
This statutory scheme provides a mechanism for the prompt payment of a guaranty association's fair share of
deductible reimbursements. It further delineates the rights and remedies of a guaranty association in pursuing its
own claims should the receiver not make a good faith effort to collect the reimbursements. Here, Florida Guaranty
concedes that in order to assert its rights to the deductible reimbursements, Florida Guaranty may either assert
them here or in an independent action. Florida Guaranty has not alleged that the Pennsylvania Commissioner, as
receiver, has failed to make a good faith effort to collect deductible amounts from Plaintiffs. It also has not alleged
that, in following the scheme, it submitted claims for payment but was unsuccessful. In fact, Plaintiffs represent
in their response that the Pennsylvania Commissioner has vigorously pursued collections efforts against Plaintiffs
and has collected millions of dollars in deductible and reinsurance payments.
*5 Florida Guaranty has established a sufficient interest in these funds as the subject of this case. However,
Florida Guaranty has not established that the case would potentially impede its ability to protect that interest.
Whatever the ultimate outcome of this case is, Florida Guaranty would still be able to follow successfully
Pennsylvania's statutory mechanism for reimbursement.
The final requirement of Rule 24(a)(2) is also not satisfied. The burden, however minimal, is on Florida Guaranty
to show that its interests are not adequately represented by the existing parties. Hoots v. Pennsylvania, 672 F.2d
1133, 1135 (3d Cir.1982). This burden may be discharged by Florida Guaranty showing: (1) that although its
interests are similar to those of one of the parties, they diverge sufficiently that the existing party cannot devote
proper attention to Florida Guaranty's interests; (2) that there is collusion between the representative party and the
opposing party; or (3) that the representative party is not diligently prosecuting the suit. Id. (emphasis added).
A party charged by law with representing the interests of the absent party will usually be deemed adequate to
represent the absentee. Delaware Valley Citizens' Council for Clean Air, et al. v. Commonwealth of PA, et al. 674
F.2d 970, 973 (3d Cir.1982). As discussed above, the Pennsylvania Commissioner, as receiver, has the statutory
right and obligation to represent all state insurance guaranty associations in connection with deductible amounts
owed by policyholders. Florida Guaranty has not shown that the Pennsylvania Commissioner will not exercise
her statutory rights or perform her statutory obligations. Besides suggesting that the Pennsylvania Commissioner
might not be as motivated to collect deductible reimbursements as Florida Guaranty itself would, Florida Guaranty
has made no allegation of collusion between the existing parties.
Furthermore, to its motion, Florida Guaranty attached a proposed answer, affirmative defenses, and counterclaims
in the event its application were successful. These proposed pleadings are almost identical to Defendant's
pleadings, with the exception of Florida Guaranty's additional affirmative defense based on 40 P.S. § 221.23a,
and Florida Guaranty's deletion of Defendant's counterclaim based on breach of contract against Plaintiffs. These
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interests do not diverge sufficiently to suggest that Defendant would not devote proper attention to Florida
Guaranty's interests.
Thus, because I find that Florida Guaranty has not satisfied the requirements of Rule 24(a)(2), I will deny its
request to intervene as of right.
However, Florida Guaranty also moves, in the alternative, for leave to intervene permissively pursuant to
Fed.R.Civ.P. 24(b). A denial of intervention as of right does not automatically mandate a denial of permissive
intervention. McKay v. Heyison, 614 F.2d 899, 906 (3d Cir.1980). Fed.R.Civ.P. 24(b) provides that upon “timely
application anyone may be permitted to intervene in an action: (1) when a statute of the United States confers a
conditional right to intervene; or (2) when an applicant's claim or defense and the main action have a question of
law or fact in common.” The rule also provides that in “exercising its discretion the court shall consider whether
the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.”
*6 As discussed above, Florida Guaranty shares both its claims and defenses with Defendant in this case; and the
delay or prejudice at this stage of the case is minimal. There being common issues of law and fact with minimal
delay or prejudice, I will grant Florida Guaranty's motion to intervene permissively pursuant to Fed.R.Civ.P. 24(b)
(2).
An appropriate order follows.
ORDER
AND NOW, this 15 th day of November, 2004, upon consideration of Florida Workers' Compensation Insurance
Guaranty Association's Motion to Intervene (Document No. 11), and the parties' responses thereto,
IT IS HEREBY ORDERED that, pursuant to Federal Rule of Civil Procedure 24(b), said Motion is GRANTED.
The Clerk of Court shall amend the caption to reflect Florida Workers' Compensation Insurance Guaranty
Association as Defendant/Counterplaintiff.
End of Document © 2011 Thomson Reuters. No claim to original U.S. Government Works.
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 5
TAB 10
Final Summary Judgment, dated March 6, 2015
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By ProcelB at 9:21 am, Mar 18, 2015
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