SENATE BILL REPORT

SSJR 8207

BYSenate Committee on Financial Institutions & Insurance (originally sponsored by Senators West and Stratton)

Immunity for members of Washington guarantee association.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):January 31, 1989; February 14, 1989

Majority Report:     That Substitute Senate Joint Resolution No. 8207 be substituted therefor, and the substitute joint resolution do pass.

     Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; McCaslin, Rasmussen, Sellar, West.

Senate Staff:Walt Corneille (786-7416)

                March 16, 1989

AS PASSED SENATE, MARCH 15, 1989

BACKGROUND:

The state Constitution provides that stockholders of domestic corporations are personally liable for all contracts, debts and engagements of the corporation to the extent of the total par value of their stock.  This creates a situation where stockholders in a failed insurance corporation not only lose their investment but also are personally responsible for a portion of the corporation's liabilities.

In 1971 the Legislature created the Life and Disability Insurance Guaranty Association and the Insurance Guaranty Association.  As a condition to transacting business in this state, specified insurance companies must belong to one of the associations and pay assessments to the funds established by each association.  The funds are established to assume, reinsure, or guarantee the performance of the policies and contracts of a domestic insurer for which a court has entered an order of liquidation.

The life and disability association applies to life and disability insurance policies and annuity contracts.  The insurance guaranty association applies to casualty insurance policies.

It has been suggested that in lieu of the guaranty association funds, stockholders of domestic insurance companies should be relieved of liability to the extent that the guaranty funds satisfy the corporation's liabilities.

SUMMARY:

A constitutional amendment is created to provide that stockholders of insurance companies which contribute to the Life and Disability Guaranty Association or the Insurance Guaranty fund are relieved of liability for the debts of the insurance company to the extent that the debts are satisfied by the fund.

The amendment must be submitted to the qualified voters of the state for ratification at the next general election.

Appropriation:  none

Revenue:   none

Fiscal Note:    none requested

Senate Committee - Testified:   Basil Badley, ACLI and HIAA (pro); Foster Cronyn, Washington Insurers