BILL REQ. #:  H-3793.1 

Read first time 01/14/2004.   Referred to Committee on Financial Institutions & Insurance.

     AN ACT Relating to the Washington insurance guarantee association act; and amending RCW 48.32.010, 48.32.020, 48.32.030, 48.32.040, 48.32.050, 48.32.060, and 48.32.145.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 48.32.010 and 1971 ex.s. c 265 s 1 are each amended to read as follows:
     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 payment and to avoid financial loss to claimants or policyholders under certain policies of insurance covered by the scope of this chapter 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.

Sec. 2   RCW 48.32.020 and 1987 c 185 s 29 are each amended to read as follows:
     This chapter shall apply to all kinds of direct insurance, except life, title, surety, disability, credit, mortgage guaranty, workers' compensation, and ocean marine ((insurance)). For the purposes of this section, "workers' compensation" means industrial insurance as defined in Title 51 RCW, but does not include longshore and harbor workers' compensation act insurance as defined in 33 U.S.C. Sec. 901 et seq.

Sec. 3   RCW 48.32.030 and 1975-'76 2nd ex.s. c 109 s 3 are each amended to read as follows:
     As used in this chapter:
     (1) "Account" means one of the ((two)) three accounts created in RCW 48.32.040 as now or hereafter amended.
     (2) "Association" means the Washington Insurance Guaranty Association created in RCW 48.32.040.
     (3) "Commissioner" means the insurance commissioner of this state.
     (4)(a) "Covered claim" means, except under (b) of this subsection, an unpaid claim, including one for unearned premiums, which arises out of and is within the coverage of an insurance policy to which this chapter applies issued by an insurer, if such insurer becomes an insolvent insurer after the first day of April, 1971 and (((a))) (i) the claimant or insured is a resident of this state at the time of the insured event; or (((b))) (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: 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. In addition, "covered claim" shall not include any claim filed with the association subsequent to the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer.
     (b) For longshore and harbor workers' insurance, a "covered claim" means an unpaid claim, excluding one for unearned premiums, for benefits due an injured worker under the provisions of the longshore and harbor workers' compensation act as defined in 33 U.S.C. Sec. 901 et seq. which is within the scope of coverage provided under an insurance policy to which this chapter applies issued by an insurer, for any insurer insolvency occurring after the first day of January 2004 and (i) the worksite from which the injury occurred was within this state or on the navigable waters within or immediately offshore of this state, or (ii) the worksite from which the injury occurred is outside this state but for which the insured was provided insurance coverage under a policy of longshore and harbor workers' compensation act insurance issued for a business located within this state. "Covered claim" does not include any amount due any insurer, reinsurer, insurance pool, or underwriting association, as subrogation recoveries or otherwise.
     (5) "Insolvent insurer" means an insurer (a) authorized to transact insurance in this state either at the time the policy was issued or when the insured event occurred and (b) determined to be insolvent and ordered liquidated by a court of competent jurisdiction, and which adjudication was subsequent to the first day of April((,)) 1971, or in the case of an insurer authorized to transact longshore and harbor workers' compensation act insurance, any insolvency occurring after January 1, 2004.
     (6) "Member insurer" means any person who (a) writes any kind of insurance to which this chapter applies under RCW 48.32.020, including the exchange of reciprocal or interinsurance contracts, and (b) holds a certificate of authority 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 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" means any individual, corporation, partnership, association, or voluntary organization.

Sec. 4   RCW 48.32.040 and 1975-'76 2nd ex.s. c 109 s 4 are each amended to read as follows:
     There is hereby created a nonprofit unincorporated legal entity to be known as the Washington Insurance Guaranty Association. All insurers defined as member insurers in RCW 48.32.030(6) as now or hereafter amended 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 RCW 48.32.070 and shall exercise its powers through a board of directors established under RCW 48.32.050 as now or hereafter amended. For purposes of administration and assessment, the association shall be divided into ((two)) three separate accounts: (1) The automobile insurance account; (2) the account for longshore and harbor workers' compensation act insurance; and (((2))) (3) the account for all other insurance to which this chapter applies.

Sec. 5   RCW 48.32.050 and 1975-'76 2nd ex.s. c 109 s 5 are each amended to read as follows:
     (1) 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.
     (2) In approving selections to the board, the commissioner shall consider among other things whether all member insurers are fairly represented. In the event of the insolvency of an insurer of longshore and harbor workers' compensation act insurance, at least one member of the board must represent the interests of this class of insurer.
     (3) 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.

Sec. 6   RCW 48.32.060 and 1975-'76 2nd ex.s. c 109 s 6 are each amended to read as follows:
     (1) The association shall:
     (a) For other than covered claims involving the longshore and harbor workers' compensation act, be obligated to the extent of the covered claims existing prior to the order of liquidation and arising within thirty days after the order of liquidation, or before the policy expiration date if less than thirty days after the order of liquidation, or before the insured replaces the policy or on request effects cancellation, if he or she does so within thirty days of the order of liquidation((, but such)). Except for covered claims involving the longshore and harbor workers' compensation act, the obligation shall include only that amount of each covered claim which is in excess of one hundred dollars and is less than three hundred thousand dollars. In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the face amount of the policy from which the claim arises. For covered claims involving the longshore and harbor workers' compensation act, the obligation shall be for the statutory obligations established under the longshore and harbor workers' compensation act.
     (b) Be 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. This right includes access to any and all reinsurance that would have inured to the benefit of the insurer had no insolvency occurred.
     (c) Allocate claims paid and expenses incurred among the ((two)) three accounts enumerated in RCW 48.32.040 ((as now or hereafter amended separately)), and assess member insurers separately for each account amounts necessary to pay the obligations of the association under subsection (1)(a) ((above)) of this section subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, the cost of examinations under RCW 48.32.110, and other expenses authorized by this chapter. Except as provided for in this subsection for insurers of longshore and harbor workers' compensation act insurance, 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 thirty days before it is due. No member insurer may be assessed in any year on any account an amount greater than two 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 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 may deem reasonable, including the payment of claims in the order such claims are received from claimants or in groups or categories of claims, or otherwise. 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. 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 such member insurer if they are chargeable to the account for which the assessment is made.
     (d) For insurers of longshore and harbor workers' compensation act insurance, the provisions of (c) of this subsection pertaining to the assessment of insurers applies except as modified by the following:
     (i) Beginning on July 1, 2004, each insurer writing coverage for longshore and harbor workers' compensation act insurance in this state, whether on a primary or excess coverage basis, shall be assessed not more than two percent of the direct written premium on each policy of insurance until a fund of five hundred thousand dollars has been established in the account established by the board of directors for this class of insurance. This assessment is authorized in excess of any approved rate filing for that class of insurance, and may at the option of the insurer be passed on directly to the insured.
     (ii) In the event there are insufficient funds in the separate longshore and harbor workers' compensation act account to cover paid claim obligations of an insolvent insurer, the association is authorized to borrow from the longshore and harbor workers' compensation assigned risk plan, the industrial insurance fund of the state of Washington, or other sources as approved by the commissioner amounts sufficient to meet the claim payment obligations of the association. These borrowed funds shall be repaid at prevailing interest rates from the assessments of the insurers of this class of insurance. Insurer assessments shall continue until all claim and loan obligations of the association have been met, and shall continue until a minimum fund deemed appropriate by the board of directors has been reestablished.
     (e) 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.
     (((e))) (f) Notify such persons as the commissioner directs under RCW 48.32.080(2)(a).
     (((f))) (g) 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.
     (((g))) (h) 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.
     (2) The association may:
     (a) Appear in, defend, and appeal any action on a claim brought against the association.
     (b) Employ or retain such persons as are necessary to handle claims and perform other duties of the association.
     (c) Borrow funds necessary to effect the purposes of this chapter in accord with the plan of operation.
     (d) Sue or be sued.
     (e) Negotiate and become a party to such contracts as are necessary to carry out the purpose of this chapter.
     (f) Perform such other acts as are necessary or proper to effectuate the purpose of this chapter.
     (g) 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.

Sec. 7   RCW 48.32.145 and 1997 c 300 s 1 are each amended to read as follows:
     (1) With the exception of insurers of longshore and harbor workers' compensation act insurance, every member insurer that prior to April 1, 1993, or after July 27, 1997, shall have paid one or more assessments levied pursuant to RCW 48.32.060(1)(c) shall be entitled to take a credit against any premium tax falling due under RCW 48.14.020. The amount of the credit shall be one-fifth of the aggregate amount of such aggregate assessments paid during such calendar year for each of the five consecutive calendar years beginning with the calendar year following the calendar year in which such assessments are paid. Whenever the allowable credit is or becomes less than one thousand dollars, the entire amount of the credit may be offset against the premium tax at the next time the premium tax is paid.
     (2) For member insurers of longshore and harbor workers' compensation act insurance, to the extent that any assessment provided for under RCW 48.32.060(1)(d)(i) is passed on to the policyholder, a credit for premium tax assessments is not permitted. If any insurer does not elect to pass this assessment on to the policyholder, then subsection (1) of this section applies to that insurer.