Alabama Guaranty Fund Laws

ALABAMA

INSURANCE GUARANTY ASSOCIATION ACT

27-42-11. Effect of paid claims; filing of paid claims and estimates with receiver or

27-42-16. Credits for assessments paid; disposition of refunds previously offset

27-42-19. Association, policyholders, beneficiaries and insureds to have preferred creditor status

27-42-20. Access to assets of insolvent insurer; application for court approval of plan to

This chapter shall be known and may be cited as the "Alabama Insurance Guaranty Association Act." (Acts 1980, No. 80-806, p. 1639, § 1.)

The purpose of this chapter is to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payments and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies and to provide an association to assess the cost of such protection among insurers. (Acts 1980, No. 80-806, p. 1639, § 2.)

This chapter shall apply to all kinds of direct insurance, except life, annuities, disability, accident and health, title, surety, credit, mortgage guaranty and ocean marine insurance. (Acts 1980, No. 80-806, p. 1639, § 3.)

This chapter shall be liberally construed to effect the purpose under section 27-42-2 which will constitute an aid and guide to interpretation. (Acts 1980, No. 80-806, p. 1639, § 4.)

As used in this chapter, the following terms shall have the following meanings, respectively, unless the context clearly indicates otherwise:

(2) ASSOCIATION. The Alabama Insurance Guaranty Association created under 27-42-6.

(4) COVERED CLAIM. An unpaid claim, including one of unearned premiums, which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this chapter applies issued by an insurer, if such insurer becomes an insolvent insurer after January 1, 1981 and (i) the claimant or insured is a resident of this state at the time of the insured event; or (ii) the property from which the claim arises is permanently located in this state. "Covered claim" shall not include any amount due any reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries or otherwise, nor shall “covered claim” include any first party claims by an insured whose net worth exceeds twenty-five million dollars ($25,000,000) on December 31 of the year prior to the year in which the insurer becomes an insolvent insurer; provided that an insured’s net worth on that date shall be deemed to include the aggregate net worth of the insured and all of its subsidiaries as calculated on a consolidated basis.

(5) INSOLVENT INSURER. An insurer licensed to transact insurance in this state, either at the time the policy was issued or when the insured event occurred, and against whom an order of liquidation with a finding of insolvency has been entered after January 1, 1981 by a court of competent jurisdiction in the insurer's state of domicile or of this state under the provision(s) of chapter 32 of Title 27, which order of liquidation has not been stayed or been the subject of a writ of supersedeas bonds or other comparable order.

(6) MEMBER INSURER. Any person who (i) writes any kind of insurance to which this chapter applies under section 27-42-3, including the exchange of reciprocal or interinsurance contracts, and (ii) is licensed to transact insurance in this state.

(7) NET DIRECT WRITTEN PREMIUMS. Direct gross premiums written in this state on insurance policies to which this chapter applies, less return premiums thereon and dividends paid or credited to policyholders on such direct business. "Net direct written premiums" does not include premiums on contracts between insurers or reinsurers.

(8) PERSON. Any individual, corporation, partnership, association or voluntary organization. (Acts 1980, No. 80-806, p. 1639, § 5; Acts 2000, S.B. 145, § 1.)

There is created a nonprofit unincorporated legal entity to be known as the Alabama Insurance Guaranty Association. All insurers defined as member insurers in subdivision (6) of section 27-42-5 shall be and remain members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under a plan of operation established and approved under section 27-42-9 and shall exercise its powers through a board of directors established under section 27-42-7. For purposes of administration and assessment, the association shall be divided into three separate accounts: (a) the workmen's compensation insurance account; (b) the automobile insurance account; and (c) the account for all other insurance to which this chapter applies. (Acts 1980, No. 80-806, p. 1639, § 6.)

(a) The board of directors of the association shall consist of not less than five nor more than nine persons serving terms as established in the plan of operation. The members of the board shall be selected by member insurers subject to the approval of 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. If no members are selected within 60 days after January 1, 1981, the commissioner may appoint the initial members of the board of directors.

(b) In approving the selections to the board, the commissioner shall consider among other things whether all member insurers are fairly represented.

(c) Members of the board may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors. (Acts 1980, No. 80-806, p. 1639, § 7.)

(1) Be obligated to the extent of the covered claims existing prior to the determination of insolvency and arising within 30 days after the determination of insolvency, or before the policy expiration date if less than 30 days after the determination, on or before the insured replaces the policy or causes its cancellation, if he does so within 30 days of the determination but the obligation shall include only that amount of each covered claim which is in excess of $100.00 and is less than $150,000.00, except that the association shall pay the full amount of any covered employee benefit claim arising under Section A of workmen's compensation policy. In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises. Notwithstanding any other provisions of this chapter, a covered claim shall not include any claim filed with the guaranty fund after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer.

(2) Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties, and obligation of the insolvent insurer as if the insurer had not become insolvent.

(3) Allocate claims paid and expenses incurred among the three accounts separately, and assess member insurers separately for each account amounts necessary to pay the obligations of the association under subdivision (1) of this subsection subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, the cost of examinations under section 27-42-13 and other expenses authorized by this chapter. 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 insurance in the account bears to the net direct written premiums of all member insurers for the calendar year preceding the assessment on the kinds of insurance in the account. Each member insurer shall be notified of the assessment not later than 30 days before it is due. No member insurer may be assessed in any one year on any account an amount greater than one percent of that member insurer's net direct written premiums for the calendar year preceding the assessment on the kinds of insurance in the account. If the maximum assessment, together with the other assets of the association in any account does not provide in any one year in any account an amount sufficient to make all necessary payments from that account, the funds available shall be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. The association shall pay claims in any order which it may deem reasonable, including the payment of claims as such are received from the claimants or in groups or categories of claims. The association may exempt or 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, no dividends shall be paid to shareholders or policyholders. Deferred assessments shall be paid when such payment will not reduce capital or surplus below required minimums Such payments shall be refunded to those companies receiving larger assessments by virtue of such deferment or, at the election of any such company, credited against future assessments. Each member insurer may set off against any assessment, authorized payments made on covered claims and expenses incurred in the payment of such claims by the 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 association's obligation and deny all other claims and may review settlements, releases and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which such settlements, releases and judgments may be properly contested.

(5) Notify such persons as the commissioner directs under subdivision (1) of subsection (b) of section 27-42-10.

(6) 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 designation may be declined by a member insurer.

(7) Reimburse each servicing facility for obligations of the association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the association and shall pay the other expenses of the association authorized by this chapter.

(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 this chapter in accord with the plan of operation.

(3) Sue or be sued, and the power to sue includes the power and right to intervene as a party before any court in this state that has jurisdiction over an insolvent insurer as defined by this article.

(4) Negotiate and become a party to such contracts as are necessary to carry out the purpose of this chapter.

(5) Perform such other acts as are necessary or proper to effectuate the purpose of this chapter.

(6) Refund to the member insurers in proportion to the contribution of each member insurer to that account that amount by which the assets of the account exceed the liabilities if, at the end of any calendar year, the board of directors finds that the assets of the association in any account exceed the liabilities of that account as estimated by the board of directors for the coming year. (Acts 1980, No. 80-806, p. 1639, § 8; Acts 2000, S.B. 145, § 1.)

(a) The association shall submit to the commissioner a plan of operation and any amendments thereto necessary or suitable to assure the fair, reasonable and equitable administration of the association. The plan of operation and any amendments thereto shall become effective upon approval in writing by the commissioner.

If the association fails to submit a suitable plan of operation within 90 days following January 1, 1981 or if at any time thereafter the association fails to submit suitable amendments to the plan, the commissioner shall, after notice and hearing, adopt and promulgate such reasonable rules as are necessary or advisable to effectuate the provisions of this chapter. Such rules shall continue in force until modified by the commissioner or superseded by a plan submitted by the association and approved by the commissioner.

(1) Establish procedures whereby all the powers and duties of the association under section 27-42-8 will be performed.

(3) Establish the amount and method of reimbursing members of the board of directors under section 27-42-7.

(4) Establish procedures by which claims may be filed with the association and establish acceptable forms of proof of covered claims. Notice of claims to the receiver or liquidator of the insolvent insurer shall be deemed notice to the association or its agent and a list of such claims shall be periodically submitted to the association or similar organization in another state by the receiver or liquidator.

(6) Establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors.

(7) Provide that any member insurer aggrieved by any final action or decision of the association may appeal to the commissioner within 30 days after the action or decision.

(8) Establish the procedures whereby selections for the board of directors will be submitted to the commissioner.

(9) Contain additional provisions necessary or proper for the execution of the powers and duties of the association.

(d) The plan of operation may provide that any or all powers and the duties of the association, except those under subdivision (3) of subsection (a) and subdivision (2) of subsection (b) of section 27-42-8 are delegated to a corporation, association or other organization which performs or will perform functions similar to those of this association, or its equivalent in two or more states. Such a corporation, association or organization shall be reimbursed as a servicing facility would be reimbursed and shall be paid for its performance of any other functions of the association. A delegation under this subsection shall take 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 which extends protection not substantially less favorable and effective than that provided by this chapter. (Acts 1980, No. 80-806, p. 1639, § 9.)

(1) Notify the association of the existence of an insolvent insurer not later than three days after he receives notice of determination of the insolvency. The association shall be entitled to a copy of any complaint seeking an order of liquidation with a finding of insolvency against a member company at the time that such complaint is filed with a court of competent jurisdiction.

(2) Upon request of the board of directors, provide the association with a statement of the net direct written premiums of each member insurer.

(1) Require that the association notify the insureds of the insolvent insurer and any other interested parties of the determination of insolvency and of their rights under this chapter. Such notification shall be by mail at their last known address, where available, but if sufficient information for notification by mail is not available, notice by publication in a newspaper of general circulation shall be sufficient.

(2) Suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer which fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative, the commissioner may levy a fine on any member insurer which fails to pay an assessment when due. Such fine shall not exceed five percent of the unpaid assessment per month, except that no fine shall be less than $100.00 per month.

(3) Revoke the designation of any servicing facility if he finds claims are being handled unsatisfactorily.

(c) Any final action or order of the commissioner under this chapter shall be subject to judicial review in a court of competent jurisdiction. (Acts 1980, No. 80-806, p. 1639, § 10.)

(a) Any person recovering under this chapter shall be deemed to have assigned his rights under the policy to the association to the extent of his recovery from the association. Every insured or claimant seeking the protection of this chapter shall cooperate with the association to the same extent as such person would have been required to cooperate with the insolvent insurer. The association shall have no cause of action against the insured of the insolvent insurer for any sums it has paid out except such causes of action as the insolvent insurer would have had if such sums had been paid by the insolvent insurer. In the case of an insolvent insurer operating on a plan with assessment liability, payments of claims of the association shall not operate to reduce the liability of insureds to the receiver, liquidator or statutory successor for unpaid assessments.

(b) 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 court having jurisdiction shall grant such claims priority equal to that which the claimant would have been entitled in the absence of this chapter against the assets of the insolvent insurer. The expenses of the association or similar organization in handling claims shall be accorded the same priority as the liquidator's expenses.

(c) The association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association which shall preserve the rights of the association against the assets of the insolvent insurer.

(d) The association shall have the right to recover from the following persons the amount of any covered claim paid on behalf of the person:

(1) An insured whose net worth on December 1 of the year immediately preceding the date the insurer becomes an insolvent insurer exceeds twenty-five million dollars ($25,000,000) and whose liability obligations, including obligations under workers’ compensation insurance coverages, to other persons are satisfied in whole or in part by the payments.

(2) Any person who is an affiliate of the insolvent insurer and whose liability obligations, including obligations under workers’ compensation insurance coverages, to other persons are satisfied in whole or in part by the payments. (Acts 1980, No. 80-806, p. 1639, § 11; Acts 2000, S.B. 145, § 1.)

(a) Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his rights under such policy. Any amount payable on a covered claim under this chapter shall be reduced by the amount of any recovery under such insurance policy.

(b) Any person having a claim which may be recovered under more than one insurance guaranty association or its equivalent shall seek recovery first from the association of the place of residence of the insured except that if it is a first party claim for damage to property with a permanent location, he shall seek recovery first from the association of the location of the property and if it is a workmen's compensation claim, he shall seek recovery first from the association of the residence of the claimant. Any recovery under this chapter shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. (Acts 1980, No. 80-806, p. 1639, § 12.)

(a) To aid in the detection and prevention of insurer insolvencies, it shall be the duty of the board of directors, upon majority vote, to notify the commissioner of any information indicating any member insurer may be insolvent or in a financial condition hazardous to the policyholders or the public.

(b) The board of directors may, upon majority vote, request that the commissioner order an examination of any member insurer which the board in good faith believes may be in a financial condition hazardous to the policyholders or the public. Within 30 days of the receipt of such request, the commissioner shall begin such examination. The examination may be conducted as a national association of insurance commissioners examination or may be conducted by such persons as the commissioner designates. The cost of such examination shall be paid by the association and the examination report shall be treated as are other examination reports. In no event, shall such examination report be released to the board of directors prior to its release to the public, but this shall not preclude the commissioner from complying with subsection (c) of this section. The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner, but it shall not be open to public inspection prior to the release of the examination report to the public.

(c) It shall be the duty of the commissioner to report to the board of directors when he has reasonable cause to believe that any member insurer examined or being examined at the request of the board of directors may be insolvent or in a financial condition hazardous to the policyholders or the public.

(d) The board of directors may, upon majority vote, make reports and recommendations to the commissioner upon any matter germane to the solvency, liquidation, rehabilitation or conservation of any member insurer. Such reports and recommendations shall not be considered public documents.

(e) The board of directors may, upon majority vote, make recommendations to the commissioner for the detection and prevention of insurer insolvencies.

(f) The board of directors shall, at the conclusion of any insurer insolvency in which the association was obligated to pay covered claims, prepare a report on the history and causes of such insolvency, based on the information available to the association and submit such report to the commissioner. (Acts 1980, No. 80-806, p. 1639, § 13.)

The association shall be subject to examination and regulation by the commissioner. The board of directors shall submit, not later than March 30 of each year, a financial report for the preceding calendar year in a form approved by the commissioner. (Acts 1980, No. 80-806, p. 1639, § 14.)

The association shall be 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. (Acts 1980, No. 80-806, p. 1639, § 15.)

(a) A member insurer may offset against its premium tax liability to this state an assessment described in subdivision (3) of subsection (a) of section 27-42-8 to the extent of 20 percent of the amount of such assessment for each of the five calendar years following the year in which such assessment was paid. In the event a member insurer should cease doing business, all uncredited assessments may be credited against its premium tax liability for the year it ceases doing business.

(b) Any sums acquired by refund, pursuant to subdivision (7) of subsection (a) of section 27-42-8, from the association which have theretofore been written off by

contributing insurers and offset against premium taxes as provided in subsection (a) of this section, and are not then needed for purposes of this chapter, shall be paid by the association to the commissioner and by him deposited with the state treasurer for credit to the general fund of this state. (Acts 1980, No. 80-806, p. 1639, § 16.)

There shall be no liability on the part of and no cause of action of any nature shall arise against any member insurer, the association or its agents or employees, the board of directors or the commissioner or his representatives for any action taken by them in the performance of their powers and duties under this chapter. (Acts 1980, No. 80-806, p. 1639, § 17).

All proceedings in which the insolvent insurer is a party or is obligated to defend a party in any court in this state shall be stayed for up to six months and such additional time thereafter as may be determined by the court from the date the insolvency is determined or an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by the association of all pending causes of action as to any covered claims arising from a judgment under any decision, verdict or finding based on the default of the insolvent insurer or its failure to defend an insured, the association either on its own behalf or on behalf of such insured may apply to have such judgment, order or administrator that made such judgment, order, decision, verdict or finding and shall be permitted to defend such claim on the merits.

The liquidator, receiver or statutory successor of an insolvent insurer covered by this chapter shall permit access by the board or its authorized representative to such of the insolvent insurer's records which are necessary for the board in carrying out its functions under this chapter with regard to covered claims. In addition, the liquidator, receiver or statutory successor shall provide the board or its representative with copies of such records upon the request by the board and at the expense of the board. (Acts 1980, No. 80-806, p. 1639, § 18).

Upon the issuance of a proper court order placing a domestic insurer in receivership or placing a foreign insurer in ancillary receivership for rehabilitation or liquidation, all policyholders, beneficiaries and insureds of such insolvent insurer, with respect to claims arising from and within the coverages of and not in excess of the applicable limits of insurance policies and contracts issued by the insolvent insurer, and liability claims against insureds which claims are within the coverage of and not in excess of the applicable limits of insurance policies and insurance contracts issued by the insolvent insurer, and the Alabama Insurance Guaranty Association and any similar organization in another state shall be preferred creditors of said insolvent insurer. (Acts 1980, No. 80-806, p. 1639, § 19.)

(a) Within 120 days of a final determination of insolvency of an insurance company by a court of competent jurisdiction the receiver shall make application to the said court for approval of a proposal to disburse assets out of such company's marshalled assets, from time to time as such assets become available, to the Alabama Insurance Guaranty Association and to any entity or person performing a similar function in another state. (The Alabama Insurance Guaranty Association and any entity or person performing a similar function in other states shall hereinafter be referred to collectively as the associations.)

(1) Reserving amounts for the payment of expenses of administration and claims falling within the priorities established in the Alabama Uniform Insurers Liquidation Act but only with respect to such priorities higher than that of the associations;

(2) Disbursement of the assets marshalled to date and subsequent disbursement of assets as they become available;

(3) Equitable allocation of disbursements of each of the associations entitled thereto;

(4) The securing by the receiver from each of the associations entitled to disbursements pursuant to this section of an agreement to return to the receiver such assets previously disbursed as may be required to pay claims of secured creditors and claims with a higher priority than those of the associations. No bond shall be required of any such association.

(c) The receiver's proposal shall provide for disbursements to the associations in amounts at least equal to the payments made or to be made thereby for which such associations could assert claims against the receiver, and shall further provide that if the assets available for disbursement from time to time do not equal or exceed the amount of such payments made or to be made by the associations then disbursements shall be in the amount of available assets.

(d) Notice of such application shall be given to the associations in and to the commissioners of insurance of each of the states. Any such notice shall be deemed to have been given when deposited in the United States certified mails, first-class postage prepaid, at least 30 days prior to submission of such application to the said court. Action on the application may be taken by the said court provided the above required notice has been given and provided further that the receiver's proposal complies with subdivisions (1) and (4) of subsection (b) of this section. (Acts 1980, No. 80-806, p. 1639, § 20.)