Arizona Guaranty Fund Laws

ARIZONA

PROPERTY AND CASUALTY INSURANCE

GUARANTY FUND ACT

1. "Account" means any one of the two accounts within the Arizona property and casualty insurance guaranty fund.

3. "Covered claim" means an unpaid claim, including one for unearned premium, which arises out of and is within the coverage of an insurance policy to which this article applies issued by an insurer, if such insurer becomes an insolvent insurer after August 27, 1977 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. Covered claim does not include any amount due any reinsurer, insurer, insurance pool or underwriting association as subrogation recoveries or otherwise nor shall it include any obligations of the insolvent insurer arising out of any reinsurance contracts nor shall it include attorney's fees or adjustment expenses incurred prior to the determination of insolvency.

5. "Insolvent insurer" means an insurer authorized to transact insurance in this state either at the time the policy was issued or when the insured event occurred and who has been determined to be insolvent by a court of competent jurisdiction.

6. "Member insurer" means any person who writes any kind of insurance, unless such writing is restricted solely to life, title, surety, disability, credit, mortgage guaranty, workers' compensation or ocean-marine insurance, including the exchange of reciprocal or inter-insurance contracts, and is licensed to transact insurance in this state.

7. "Net direct written premiums" means direct gross premiums written in this state on insurance policies to which this article apples, less return premiums and dividends paid or credited to policyholders on such direct business. Net direct written premiums do not include premiums on contracts between insurers or reinsurer.

Added by Laws 1977, Ch. 130, § 2. Amended by Laws 1978, Ch. 194, § 2, eff. June 7, 1978, retroactively eff. to Aug. 27, 1977; Laws 1984, Ch. 188, § 13.

A. There is established an Arizona property and casualty insurance guaranty fund within the department of insurance. The fund shall be deposited in a depository designated by the director and shall exercise its powers through a board established pursuant to § 20-663.

B. For the purpose of assessment, the fund shall be divided into two separate accounts:

C. All costs, expenses and liabilities of the fund shall be paid by the fund and shall not be a general obligation of the state.

D. All monies placed in the accounts of the fund may be expended for the purposes of this article.

Added by Laws 1977, Ch. 130, § 2. Amended by Laws 1978, Ch. 39, § 3, eff. May 16, 1978.

A. There is established within the department of insurance a guaranty fund board consisting of eleven members appointed by the governor. Membership on the board shall be for a term of three years. Of the members first appointed, four shall serve for terms of one year, four shall serve for terms of two years and three shall serve for terms of three years.

B. The members of the board shall be appointed from a list of persons submitted to the governor by the director of insurance. The board shall be selected as follows:

2. Two members from insurers representing the American mutual insurance alliance.

3. Two members from insurers representing the national association of independent insurers.

4. Three members from member insurers not affiliated with the groups listed in paragraph 1, 2 or 3.

C. The board shall conduct periodic meetings in Phoenix. Meetings shall be held upon call of the director or upon written request of any two members of the board.

D. Subject to the powers of the director the board shall administer, operate and manage the fund pursuant to this article. The board shall advise and counsel with the director upon matters relating to the solvency of insurers.

E. Members of the board shall receive no compensation and shall not be entitled to travel expenses as authorized by title 38, chapter 4, article 2,¹ but shall be entitled to be reimbursed for expenses incurred by them as members of the board from the assets of the fund.

1. Investigate claims brought against the fund and adjust, compromise, settle and pay covered claims to the extent of the fund's obligation and deny all other claims.

2. Within six months after the determination of insolvency or six months after the fund discovers or should have discovered the settlement of a covered claim, whichever is later, deny and state the basis for the denial or pay any covered claim that was settled within four months before the determination of insolvency of the insolvent insurer.

3. Allocate claims paid and expenses incurred among the two accounts of the fund separately.

5. Notify such persons as the director directs pursuant to § 20-668, subsection B, paragraph 1.

6. Handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility shall be subject to the approval of the director. Designation may be declined by a member insurer.

7. Reimburse each servicing facility for obligations of the fund paid by the facility and for expenses incurred by the facility while handling the claims on behalf of the fund and pay the other expenses of the fund authorized pursuant to this article.

1. Appear in, defend and appeal any action on a claim that is brought against the fund.

2. Employ or retain such persons as are necessary to handle claims and perform other duties of the fund.

3. Borrow funds necessary to carry out the intent of this article pursuant to the plan of operation.

5. Negotiate and become a party to such contracts as are necessary to carry out the intent of this article.

6. Perform such other acts as are necessary or proper to carry out the intent of this article.

A. The board shall submit to the director a fund plan of operation and any amendments necessary or suitable to assure the fair, reasonable and equitable administration of the fund. The plan of operation and any amendments shall become effective upon approval, in writing by the director.

B. If the board fails to submit a suitable plan of operation or if at any time the board fails to submit suitable amendments to the plan, the director shall, adopt any plan or amendment that is necessary or advisable to effectuate the provisions of this article and the plan or amendment shall continue in force until modified by the director or superseded by a plan submitted by the board and approved by the director. All member insurers shall comply with the plan of operation.

1. Establish the procedures for execution of all powers and duties of the board.

3. Establish the amount and method of reimbursing members of the board pursuant to § 20-663.

4. Establish procedures by which claims may be filed with the fund and establish acceptable forms of proof of covered claims. Notice of claims to the receiver, conservator or liquidator of the insolvent insurer shall be deemed notice to the fund or its agents and a list of such claims shall be periodically submitted to the fund 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 fund, the board and its agents.

7. Provide that any member insurer aggrieved by any final action or decision of the fund may appeal to the director within thirty days after the action or decision.

8. Establish the procedures for recommendations to the director for selections to the board.

9. Contain additional provisions that are necessary or proper for the execution of the powers and duties of the board.

1. Notify the director of any information indicating that any member insurer may be insolvent or in a financial condition that is hazardous to the policyholders or to the public.

2. Notify the director of any information indicating that a member insurer may be unable to fulfill its contractual obligations and request a meeting with the director.

3. Upon request of the director, attend hearings before the director and meet with and advise the director or the receiver, conservator or liquidator appointed by the director on matters relating to the affairs of an insolvent insurer and relating to action which may be taken by the director, receiver, conservator or liquidator to best protect the interests of persons holding covered claims against the insolvent insurer and relating to the amount and timing of partial assessments and a marshalling of assets and the processing and handling of covered claims.

4. At the conclusion of any insurer insolvency in which the fund was obligated to pay covered claims, prepare a report on the history and causes of such insolvency, based on the information available to the board and submit such report to the director.

E. In regard to the prevention and detection of insolvencies the board may, on majority vote:

1. Request that the director make available to the board any information in the director's possession relative to the financial condition of any member insurer, including the power to pursue officially any operational records or activity of the member insurer wherever deemed necessary.

2. Request that the director 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 to the public.

3. Make recommendations and reports to the director upon any matter germane to the solvency, liquidation, rehabilitation or conservation of any member insurer. Such reports and recommendation shall not be considered public documents.

4. Make recommendations to the director for the detection and prevention of insurer insolvencies.

F. The plan of operation may provide that any or all powers and duties of the board, except those pursuant to § 20-664, subsection A, paragraphs 3 and 4 and subsection B, are delegated to a corporation, association or other organization which performs or will perform functions similar to those of this fund, or its equivalent, in two or more states. Such a corporation, association or organization shall be reimbursed as a servicing facility and shall be paid for its performance of any other function of the fund. A delegation pursuant to this subsection shall take effect only with the approval of both the board and the director 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 article.

A. The board shall assess each member insurer, as a condition of such insurer's authority to transact insurance in this state, in such amounts as are necessary to pay the obligations of the fund pursuant to § 20-667 subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, the cost of examinations and other expenses authorized pursuant to this article.

B. The assessment of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the preceding calendar year on the kinds of insurance in the account bears to the net direct written premiums of all member insurers for the preceding calendar year on the kinds of insurance in the account. The board shall notify each member insurer of the assessment not later than thirty days before it is due. No member insurer may be assessed in any year on any account an amount greater than one per cent of such member insurer's net direct written premiums for the preceding calendar year on the kinds of insurance in the account.

C. If the maximum assessment, together with the other assets of the fund in any account, does not provide in any one year in any account an amount sufficient to make all necessary payments from such account, the funds available may be prorated and the unpaid portion shall be paid as soon as funds become available. The board shall pay claims in any order which it may deem reasonable, including the payment of claims as such claims are received from the claimants or in groups or categories of claims.

D. The board 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.

E. 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 claims by the member insurer if they are chargeable to the account for which the assessment is made.

F. In addition to all other assessments, the board may assess each member insurer in an amount not to exceed two hundred dollars per year for the purpose of paying for operating expenses of the board and employees of the board.

G. If, at the end of any calendar year, the board finds that the assets of the fund in any account exceed the liabilities of such account as estimated by the board for the coming year, the board may refund to the member insurers in proportion to the contribution of each member insurer to such account the amount by which the assets of the account exceed the liabilities. All refunds will be contingent upon the return of a member insurer's certificate(s) of contribution and will be in an amount equal to the premium tax off-set value of the relinquished certificate.

A. The fund is obligated solely to the extent of the covered claims existing during any of the following periods:

1. Prior to the determination of insolvency and arising within thirty days after the determination of insolvency.

2. Before the policy expiration date if less than thirty days after the determination of insolvency.

3. Before the insured replaces the policy or on request effects cancellation, if the insured does so within thirty days of the determination of insolvency.

B. Such obligation shall include only that amount of each covered claim which is in excess of one hundred dollars and is less than one hundred thousand dollars, except that the fund shall pay any covered claim in unearned premiums of twenty-five dollars or more. In no event shall the fund be obligated to a policyholder or claimant in any amount in excess of the face amount of the policy from which the claim arises.

C. The fund is deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent. Notwithstanding any other law, the fund is not obligated to pay any amount that does not constitute a payment of a covered claim, including taxable costs, attorney fees or interest that could be awarded or any additional liabilities or obligations that might otherwise exist or accrue against the insolvent insurer if the insurer had not become insolvent.

D. Any settlement of a covered claim that is entered into with any insured or claimant within four months before the determination of insolvency and that has not been paid is voidable by the fund for six months after the determination of the insolvency or six months after the fund discovers or should have discovered the settlement, whichever is later.

E. The fund is not bound by any settlement that is more than the fund's limits of liability established by this article.

1. Report to the board when the director has reasonable cause to believe that any member insurer examined or being examined at the request of the board may be insolvent or in a financial condition hazardous to the policyholders or to the public.

2. Notify the board of the existence of an insolvent insurer not later than three working days after the director receives notice of such insolvency.

3. Upon request of the board, provide the fund with a statement of the net direct written premiums of each member insurer.

4. Immediately make available to the fund for the purpose of making payment upon all covered claims such assets of the insolvent insurer which are not required for payment of any claim accorded a higher priority pursuant to section 20-629.

1. Require that the fund notify the insureds of the insolvent insurer and any other interested parties of the determination of insolvency and of their rights pursuant to this article. Such notification shall be by mail at their last known address, where available. If sufficient information for notification by mail is not available, notice shall be by publication in a newspaper of general circulation.

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 director may assess a civil penalty on any member insurer which fails to pay an assessment when due. The penalty shall not exceed five per cent of the unpaid assessment per month. No penalty shall be less than one hundred dollars per month, which amount shall be deposited, pursuant to §§ 35-146 and 35-147, in the state general fund.

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

C. Any final action or order of the director pursuant to this article shall be subject to review pursuant to chapter 1, article 2 of this title.¹

Added by Laws 1977, Ch. 130, § 2; Amended by Laws 1993, Ch. 17, §7; Amended by Laws 1996, Ch. 102, § 17; Laws 2000, Ch. 193, § 135.

A. Within thirty days of receipt by the director of a request from the board to examine any member insurer, the director shall begin such examination. The director may conduct the examination in any manner deemed appropriate.

B. The cost of such examination shall be paid by the board and the examination report shall be treated as are other examination reports.

C. Such examination report may be released to the board prior to its release to the public. The director shall notify the board when the examination is completed. The request for an examination shall be kept on file by the director but it shall not be open to public inspection prior to the release of the examination report to the public.

A. Upon receipt of notification from the board that a member insurer may be unable to fulfill its contractual obligations, the director shall meet with the board.

B. At such meeting, the director may divulge to the board any information in his possession and any records of his office, including examination reports or preliminary reports from examiners relating to such insurer.

C. The director may subpoena officers, directors and employees of an insolvent or impaired insurer or of an insurer the director considers to be in danger of insolvency or impairment, to appear before the board for a conference or for taking testimony.

D. The board shall not reveal information received in such meetings to anyone unless authorized by the director or when required as a witness in court.

Notwithstanding any provision of law to the contrary, special meetings of the board in which the financial condition of any member insurer is discussed, shall not be open to the public and only members of the board, the director of insurance and other persons specifically authorized by the board may attend such meetings.

A. Any person recovering pursuant to this article shall be deemed to have assigned his or her rights under the policy to the fund to the extent of his or her recovery from the fund. Every insured or claimant seeking the protection of this article shall cooperate with the fund to the same extent as such person would have been required to cooperate with the insolvent insurer. The fund shall have no cause of action against the insured of the insolvent insurer for any sums it has paid.

B. The receiver, conservator, liquidator or statutory successor of an insolvent insurer shall be bound by settlement of covered claims by the fund or similar organization in another state.

C. The board shall periodically file with the receiver, conservator, liquidator or statutory successor of the insolvent insurer statements of the covered claims paid by the fund and estimates of anticipated claims on the fund which shall preserve the right of the fund against the assets of the insolvent insurer.

§ 20-673. Nonduplication of recovery; exhausting all other applicable coverages; rights of fund and member insurer

A. Any person having a claim against an insurer under any provision in an insurance policy that is also a covered claim shall be required to exhaust first all rights under such policy. Any amount payable on a covered claim pursuant to this article shall be reduced by the amount of such recovery under the claimant's insurance policy. Any recovery pursuant to this article shall be reduced by the amount of the recovery under the claimant's insurance policy. A member insurer or other insurer, which pays such insurer's own policy, shall have no right of subrogation or recovery against the insured of an insolvent insurer.

B. Any person having a claim that may be recovered under more than one insurance guaranty fund or its equivalent or who is insured under more than one policy shall first exhaust coverage from the fund of the place of residence of the insured or, if it is a first-party claim for damage to property with a permanent location, shall first exhaust coverage from the fund of the location of the property, or shall first exhaust coverage under such other policy. Any recovery pursuant to this article shall be reduced by the amount of the recovery from any other insurance guaranty fund or its equivalent or under another policy. Covered claims by subscribers of an insolvent reciprocal insurer shall not be paid until all subscribers have been assessed pursuant to § 20-791.

C. Where more than one policy may be applicable, a policy issued by the insolvent insurer shall be deemed to be excess coverage. The claimant shall be required to exhaust all rights under other applicable coverage or coverages. Any recovery pursuant to this article shall be reduced by the amount of the recovery under the claimants insurance policy. Any amount payable on a covered claim shall be reduced by the amount of such recovery under other applicable insurance.

D. If damages against uninsured motorists are recoverable by the claimant from such claimant's own insurer, such recoverable damages shall reduce the amount of any recovery pursuant to this article if the full amount of such uninsured motorist coverage has been exhausted. Such claimant shall have no claim against the insured of the insolvent carrier or the fund if the full amount of uninsured motorist coverage was not recovered by such claimant. A member insurer shall have no right of subrogation against the insured of the insolvent carrier or against the fund for any amount paid by such insurer under uninsured motorist coverage. A member insurer may file a claim for such subrogation payments under uninsured motorist coverage against the ancillary or domiciliary receiver of the insolvent insurer.

E. The fund shall receive the proceeds of any amounts recoverable on reinsurance contracts or treaties entered into by the insolvent insurer that cover any of the liabilities incurred by the insolvent insurer in the category or categories involved. Such proceeds shall be limited to payments upon or loss adjustment expenses or defense costs actually incurred by the fund on account of claims covered in such contracts or treaties. The director, as receiver or ancillary receiver, shall receive the proceeds of any reinsurance recoverable to the extent of payment on claims, loss adjustment expenses or defense costs made prior to the order of liquidation.

F. If a covered claim arises out of two or more policies to which this article applies, a recovery under one policy reduces the amount that is payable under the other policy. The fund is not liable for the payment of more than one policy on a covered claim.

G. For the purposes of this article, exhaustion of all rights under any other policy of insurance means the payment of the applicable policy limits or an adjudication by a court of record that no benefits are owed.

A. The fund shall issue to each insurer paying an assessment pursuant to this article a certificate of contribution, in a form prescribed by the director for the amount paid. All outstanding certificates shall be of equal priority without reference to amounts or dates of issue.

B. A certificate of contribution issued to a member insurer may be offset against such insurer's premium tax liability to this state in the amount of twenty per cent of the assessment for the year of assessment and twenty per cent of the assessment per year for each of the succeeding four years. A member shall at its option have the right to show a certificate of contribution as an asset in the form approved by the director at percentages of the original face amount approved by the director, for calendar years as follows:

C. Any sums available for refund, pursuant to § 20-666, from the fund which have been written off by contributing insurers and offset against premium taxes shall be paid to the director and shall be deposited, pursuant to §§ 35-146 and 35-147, in the state general fund.

D. Notwithstanding subsection B of this section, the total amount a member insurer, as defined in § 20-661, may offset against its premium tax liability pursuant to a certificate of contribution that is issued from 1987 through 1994 shall not exceed the following percentage amounts for each certificate of contribution, except that in no event may the total amount of the offset exceed one hundred per cent of each assessment:

E. No insurer may offset its premium tax liability by any amount unless the assessment for which the first year credit is claimed was collected by the guaranty fund in the calendar year for which the insurer seeks to offset its taxes.

F. Beginning in 1995, the total amount that a member insurer may offset against its premium tax liability pursuant to a certificate of contribution shall be as provided in subsection B of this section, except that in no event may the total amount of the offset exceed one hundred per cent of the assessment.

Added by Laws 1977, Ch. 130, §2; Amended by Laws 1992, Ch. 290, § 1; Laws 2000, Ch. 193, § 135.

A. There shall be no liability on the part of, and no cause of action shall rise against, the fund, any member insurer, the board or its agents or employees, the director or representatives of the director for any action taken in the performance of their powers and duties pursuant to this article.

B. The board and its agents or employees shall be indemnified by the fund against all expenses incurred in the defense of any action, suit or proceeding brought against such person on account of any action taken in the performance of the powers and duties of such person pursuant to this article, unless such person is finally adjudged to have committed a breach of duty involving gross negligence, bad faith, dishonesty, wilful malfeasance or reckless disregard of the responsibilities of his or her office. In the event of settlement before the final adjudication, such indemnity shall be provided only if the board is advised by independent counsel selected by the board that such person did not, in counsel's opinion, commit such a breach of duty.

C. The fund's reimbursement of such expenses of indemnification shall be prorated and paid for by the member insurers in the proportion that the net direct written premiums of each member insurer for the calendar year preceding the commencement of such action, suit or proceeding bears to the net direct written premiums of all member insurers for the preceding calendar year.

A. All proceedings in which the insolvent insurer or the insolvent insurer's insured is a party in any court of this state shall be stayed for six months from the date the insolvency is determined or an ancillary proceeding is instituted in this state, whichever is later, to permit proper defense by the fund of all pending causes of action as to any covered claim. At the request of any party and on a showing of good cause, the court may shorten or lengthen the stay prescribed in this section.

B. On application of the fund, either on the fund's own behalf or on the insured's behalf, the court may set aside any judgment, order, decision, verdict, finding or award arising from the default of the insolvent insurer or the insurer's failure to defend the insured and the fund shall be permitted to defend the claim on the merits.

Added by Laws 1977, Ch. 130, § 2. Amended by Laws 1978, Ch. 39, § 4, eff. May 16, 1978; Amended 1998, ch. 94, § 7, eff. 8-21-98.

All interest earned on monies held and invested by the fund shall be credited to the account from which the funds were obtained. Investments by the board shall be restricted to those investments which are permitted by insurers for statutory deposits pursuant to § 20-583.

The fund shall be subject to examination by the director. The fund shall, annually, report its financial condition for the preceding year, to the legislature, member insurers and the director. At the conclusion of the fund's handling of each insolvency, an audit of the financial transactions relating to such insolvency shall be made by the director of insurance or an independent accounting firm.

With respect to the handling of claims, the fund may by resolution bar known claims, whether liquidated or unliquidated, not filed within four months from the date of notice to creditors.

A. This article shall apply to all kinds of insurance except life, title, surety, disability, credit, mortgage guarantee, workers' compensation, ocean-marine insurance, any kind of surplus lines insurance and any policy of insurance issued to an industrial insured pursuant to §20-400.10. This article shall not cover any new types of coverages approved or permitted after August 27, 1977.

B. The exemption prescribed in this section does not restrict any of the fund's rights or defenses permitted under this article, including the application of any credit or offset prescribed in Section 20-673 for payments made under any policy of insurance, including any policy of insurance that is exempt from this article.

Added by Laws 1977, Ch. 130, § 2. Amended by Laws 1978, Ch. 194, § 3, eff. June 7, 1978, retroactively eff. to Aug. 27, 1977; Laws 1984, Ch. 188, § 14; Amended 1998, ch. 94, § 8, eff. 8-21-98; Laws