SECTIONS 1063-1063.17 - California Statutes

INSURANCE CODE

SECTION 1063-1063.17

1063. (a) Within 60 days after the original effective date of this
article, all insurers, including reciprocal insurers, admitted to
transact insurance in this state of any or all of the following
classes only in accordance with the provisions 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 Section 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 other 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 indemnity coverage, or
reinsurance as defined in Section 620, or fraternal fire insurance
written by associations organized 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 insurer admitted to
transact a class of insurance included in this article, 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
established as provided in this article. It shall be the purpose of
the association to provide for each member insurer insolvency
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 thereafter 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 of
the 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
insurers covered by this article. In case of a vacancy for any reason
on the board, the commissioner shall appoint a member insurer to
fill the unexpired term. In addition to the nine member insurers, the
membership of the board shall also include one public member
appointed by the President pro Tempore of the Senate, one public
member appointed by the Speaker of the Assembly, one business member
appointed by the commissioner, and one labor member appointed by the
commissioner.
(c) The association shall adopt a plan of operations, and any
amendments thereto, not inconsistent with the provisions of this
article, necessary to assure the fair, reasonable, and equitable
manner of administering the association, 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 commissioner. 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 original 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 necessary or advisable to effectuate the provisions of
this chapter. These rules shall continue in force until modified by
the commissioner after hearing or superseded by a plan of operation,
adopted by the association and approved by the commissioner.
(e) In accordance with its plan of operation, the association may
designate one or more of its members as a servicing facility, but a
member may decline this designation. Each servicing facility shall be
reimbursed by the association 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 servicing 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 article, and may
provide in its plan of operations for any of the following:
(1) The issuance of notes, bonds, or debentures, or the
establishment of a special purpose trust or other entity, solely for
the purpose of facilitating a financing.
(2) The securing of that borrowing or those notes, bonds, or
debentures by pledging or granting liens or mortgages, or by
otherwise encumbering its real or personal property, including, but
not limited to, premiums levied under Section 1063.5.
(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 effectuate 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, adjusted, 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 implement 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 requirements of Article 4
(commencing with Section 730) of Chapter 1 of Part 2 of Division 2,
which sets forth the examination 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.

1063.1. As used in this article:
(a) "Member insurer" means an insurer required to be a member of
the association in accordance with subdivision (a) of Section 1063,
except and to the extent that the insurer is participating in an
insolvency program adopted by the United States government.
(b) "Insolvent insurer" means an insurer that was a member insurer
of the association, consistent with paragraph (11) of subdivision
(c), either at the time the policy was issued or when the insured
event occurred, and against which an order of liquidation or
receivership with a finding of insolvency has been entered by a court
of competent jurisdiction, or, in the case of the State Compensation
Insurance Fund, if a finding of insolvency is made by a duly enacted
legislative measure.
(c) (1) "Covered claims" means the obligations of an insolvent
insurer, including the obligation for unearned premiums, that satisfy
all of the following requirements:
(A) Imposed by law and within the coverage of an insurance policy
of the insolvent insurer.
(B) Which were unpaid by the insolvent insurer.
(C) 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.
(D) 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.
(E) For which the assets of the insolvent insurer are insufficient
to discharge in full.
(F) In the case of a policy of workers' compensation insurance, to
provide workers' compensation benefits under the workers'
compensation law of this state.
(G) In the case of other classes of insurance 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 includes 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" under this paragraph
shall be required to satisfy the requirements of subparagraphs (A) to
(G), inclusive, of paragraph (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:
(A) Life, annuity, health, or disability insurance.
(B) Mortgage guaranty, financial guaranty, or other forms of
insurance offering protection against investment risks.
(C) Fidelity or surety insurance including fidelity or surety
bonds, or any other bonding obligations.
(D) Credit insurance.
(E) Title insurance.
(F) Ocean marine insurance or ocean marine coverage under any
insurance policy including claims arising from 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 indemnity coverage.
(G) 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 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 insolvent 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 remaining, 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, nor any amount awarded by the Workers'
Compensation Appeals Board pursuant to Section 5814 or 5814.5 of the
Labor Code because payment of compensation was unreasonably delayed
or refused by the insolvent insurer.
(9) "Covered claims" does not include (A) 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 or (B) any claim by any
person other than the original 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 executor,
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 contract 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.
(13) "Covered claims" shall also include obligations arising under
an insurance policy written to indemnify a permissibly self-insured
employer pursuant to subdivision (b) or (c) of Section 3700 of the
Labor Code for its liability to pay workers' compensation benefits in
excess of a specific or aggregate retention, provided, however, that
for purposes of this article, those claims shall not be considered
workers' compensation claims and therefore are subject to the per
claim limit in paragraph (7) and any payments and expenses related
thereto shall be allocated to category (c) for claims other than
workers' compensation, homeowners, and automobile, as provided in
Section 1063.5.
These provisions shall apply to obligations arising under any
policy as described herein issued to a permissibly self-insured
employer or group of self-insured employers pursuant to Section 3700
of the Labor Code and notwithstanding any other provision of this
code, those obligations shall be governed by this provision in the
event that the Self-Insurers' Security Fund is ordered to assume the
liabilities of a permissibly self-insured employer or group of
self-insured employers pursuant to Section 3701.5 of the Labor Code.
The provisions of this paragraph apply only to insurance policies
written to indemnify a permissibly self-insured employer or group of
self-insured employers under subdivision (b) or (c) of Section 3700
of the Labor Code, for its liability to pay workers' compensation
benefits in excess of a specific or aggregate retention, and this
paragraph does not apply to special excess workers' compensation
insurance policies unless issued pursuant to authority granted in
subdivision (c) of Section 3702.8 of the Labor Code, and as provided
for in subparagraph (G) of paragraph (3). In addition, this paragraph
does not apply to any claims servicing agreement or insurance policy
providing retroactive insurance of a known loss or losses as are
excluded in subparagraph (G) of paragraph (3).
Each permissibly self-insured employer or group of self-insured
employers, or the Self-Insurers' Security Fund, shall, to the extent
required by the Labor Code, be responsible for paying, adjusting, and
defending each claim arising under policies of insurance covered
under this section, unless the benefits paid on a claim exceed the
specific or aggregate retention, in which case:
(A) If the benefits paid on the claim exceed the specific or
aggregate retention, and the policy requires the insurer to defend
and adjust the claim, the California Insurance Guarantee Association
(CIGA) shall be solely responsible for adjusting and defending the
claim, and shall make all payments due under the claim, subject to
the limitations and exclusions of this article with regard to covered
claims. As to each claim subject to this paragraph, notwithstanding
any other provisions of this code or the Labor Code, and regardless
of whether the amount paid by CIGA is adequate to discharge a claim
obligation, neither the self-insured employer, group of self-insured
employers, nor the Self-Insurers' Security Fund, shall have any
obligation to pay benefits over and above the specific or aggregate
retention, except as provided in this subdivision.
(B) If the benefits paid on the claim exceed the specific or
aggregate retention, and the policy does not require the insurer to
defend and adjust the claim, the permissibly self-insured employer or
group of self-insured employers, or the Self-Insurers' Security
Fund, shall not have any further payment obligations with respect to
the claim, but shall continue defending and adjusting the claim, and
shall have the right, but not the obligation, in any proceeding to
assert all applicable statutory limitations and exclusions as
contained in this article with regard to the covered claim. CIGA
shall have the right, but not the obligation, to intervene in any
proceeding where the self-insured employer, group of self-insured
employers, or the Self-Insurers' Security Fund is defending any such
claim and shall be permitted to raise the appropriate statutory
limitations and exclusions as contained in this article with respect
to covered claims. Regardless of whether the self-insured employer or
group of self-insured employers, or the Self-Insurers' Security
Fund, asserts the applicable statutory limitations and exclusions, or
whether CIGA intervenes in any such proceeding, CIGA shall be solely
responsible for paying all benefits due on the claim, subject to the
exclusions and limitations of this article with respect to covered
claims. As to each claim subject to this paragraph, notwithstanding
any other provision of the Insurance Code or the Labor Code and
regardless of whether the amount paid by CIGA is adequate to
discharge a claim obligation, neither the self-insured employer,
group of self-insured employers, nor the Self-Insurers' Security
Fund, shall have any obligation to pay benefits over and above the
specific or aggregate retention, except as provided in this
subdivision.
(C) In the event that the benefits paid on the covered claim
exceed the per claim limit in paragraph (7), the responsibility for
paying, adjusting, and defending the claim shall be returned to the
permissibly self-insured employer or group of employers, or the
Self-Insurers' Security Fund.
These provisions shall apply to all pending and future
insolvencies. For purposes of this paragraph, a pending insolvency is
one involving a company that is currently receiving benefits from
the guarantee association.
(d) "Admitted to transact insurance in this state" means an
insurer possessing a valid certificate of authority issued by the
department.
(e) "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.
(f) "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 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 insurance, 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 expense 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 as
calculated by the liquidator 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.

1063.2. (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 motorist 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
that insurer under uninsured motorist coverage for bodily injury or
wrongful death (and nothing for a payment for anything else), in
those cases where the injured person insured by such an insurer has
proceeded under his or her uninsured motorist coverage on the ground
that the tortfeasor is uninsured as a result of the insolvency of his
or her liability insurer (an insolvent insurer as defined in this
article), provided that the member insurer shall waive all rights of
subrogation against the tortfeasor. Any amount paid a claimant in
excess of the amount authorized by this section may be recovered by
action, or other proceeding, brought by the association.
(2) Any claimant having collision coverage on a loss that 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 insurance company for that collision damage.
(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.
(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's fees and
expenses, court costs, interest, and bond premiums, incurred prior
to the appointment of a liquidator.

1063.3. To aid in the detection and prevention of member insurer
insolvencies:
(a) The board may, upon majority vote, make recommendations to the
commissioner on matters pertaining to regulation for solvency.
(b) The board may prepare a report on the history and causes of
any member insurer insolvency in which the association was obligated
to pay covered claims, based on the information available to the
association, and submit that report along with any recommendations
resulting therefrom to the commissioner.
(c) The board may request the Self-Insurers' Security Fund to
prepare, and the Self-Insurers' Security Fund may provide to the
board, a report identifying the aggregate amount of liability,
including the estimated exposure for every insurance carrier admitted
to transact workers' compensation insurance in this state, under all
specific excess workers' compensation policies in existence for a
given period in this state as reported by the private self-insured
employers to the Director of Industrial Relations in the annual
reports submitted pursuant to Section 3702.2 of the Labor Code.

1063.4. (a) Insureds entitled to the protection of this article
shall cooperate with the association in accordance with their
policies in the same manner as they would have been required to
cooperate with their insurer if it were not in liquidation and shall
be deemed to have assigned to the association any right to make claim
against the liquidator for a refund of unearned premium for the
period of coverage provided by the association beginning on the date
of the order of liquidation to the date of expiration or
cancellation.
(b) Any insured or claimant entitled to the benefits of this
article who elects to proceed under this article shall be deemed to
have assigned to the association his or her rights against the estate
of the insolvent insurer.

1063.5. Each time an insurer becomes insolvent then, to the extent
necessary to secure funds for the association for payment of covered
claims of that insolvent insurer and also for payment of reasonable
costs of adjusting the claims, the association shall collect premium
payments from its member insurers sufficient to discharge its
obligations. The association shall allocate its claim payments and
costs, incurred or estimated to be incurred, to one or more of the
following categories: (a) workers' compensation claims; (b)
homeowners' claims, and automobile claims, which shall include:
automobile material damage, automobile liability (both personal
injury and death and property damage), medical payments and uninsured
motorist claims; and (c) claims other than workers' compensation,
homeowners', and automobile, as above defined. Separate premium
payments shall be required for each category. The premium payments
for each category shall be used to pay the claims and costs allocated
to that category. The rate of premium charged shall be a uniform
percentage of net direct written premium in the preceding calendar
year applicable to that category. The rate of premium charges to each
member in the appropriate categories shall initially be based on the
written premium of each insurer as shown in the latest year's annual
financial statement on file with the commissioner. The initial
premium shall be adjusted by applying the same rate of premium charge
as initially used to each insurer's written premium as shown on the
annual statement for the second year following the year on which the
initial premium charge was based. The difference between the initial
premium charge and the adjusted premium charge shall be charged or
credited to each member insurer by the association as soon as
practical after the filing of the annual statements of the member
insurers with the commissioner for the year on which the adjusted
premium is based. Any credit due in a specific category to a member
insurer as a result of the adjusted premium calculation may be
refunded to the member insurer at the discretion of the association
if the member insurer has agreed with the commissioner to no longer
write insurance in that category but has not withdrawn from the state
and surrendered its certificate of authority. However, in the case
of an insurer that was a member insurer when the initial premium
charge was made and that paid the initial assessment but is no longer
a member insurer at the time of the adjusted premium charge by
reason of its insolvency or its withdrawal from the state and
surrender of its certificate of authority to transact insurance in
this state, any credit accruing to that insurer shall be refunded to
it by the association. "Net direct written premiums" shall mean the
amount of gross premiums, less return premiums, received in that
calendar year upon business done in this state, other than premiums
received for reinsurance. In cases of a dispute as to the amount of
the net direct written premium between the association and one of its
members the written decision of the commissioner shall be final. The
premium charged to any member insurer for any of the three
categories or a category established by the association shall not be
more than 2 percent of the net direct premium written in that
category in this state by that member per year, starting on January
1, 2003, until December 31, 2007, and thereafter shall be 1 percent
per year. The association may exempt or defer, in whole or in part,
the premium charge of any member insurer, if the premium charge would
cause the member insurer's financial statement to reflect an amount
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. However, during the
period of deferment, no dividends shall be paid to shareholders or
policyholders by the company whose premium charge was deferred.
Deferred premium charges shall be paid when the payment will not
reduce capital or surplus below required minimums. These payments
shall be credited against future premium charges to those companies
receiving larger premium charges by virtue of the deferment. After
all covered claims of the insolvent insurer and expenses of
administration have been paid, any unused premiums and any
reimbursements or claims dividends from the liquidator remaining in
any category shall be retained by the association and applied to
reduce future premium charges in the appropriate category. However,
an insurer which ceases to be a member of the association, other than
an insurer that has become insolvent or has withdrawn from the state
and has surrendered its certificate of authority following an
initial assessment that is entitled to a refund based upon an
adjusted assessment as provided above in this section, shall have no
right to a refund of any premium previously remitted to the
association. The commissioner may suspend or revoke the certificate
of authority to transact business in this state of a member insurer
which fails to pay a premium when due and after demand has been made.
Interest at a rate equal to the current federal reserve discount
rate plus 2 1/2 percent per annum shall be added to the premium of
any member insurer which fails to submit the premium requested by the
association within 30 days after the mailing request. However, in no
event shall the interest rate exceed the legal maximum.

1063.6. All proceedings in which the insolvent insurer is a party
or is obligated to defend a party in any court in the state shall,
subject to waiver by the association in specific cases involving
covered claims and subject to waiver by the commissioner as to
matters that are not covered claims, be stayed for 60 days from the
date that an order of liquidation or an order of receivership with a
finding of insolvency has been entered by a superior court in this
state or by a court in the state of domicile of the insurer, and an
additional time thereafter as may be determined necessary by the
court to permit proper defense or conduct of all pending causes of
action by the association or the commissioner, as applicable. The
stay as to matters to which the insolvent insurer is a party shall be
superseded by and when an injunction or stay order is entered by the
court in this state having jurisdiction of the liquidation or the
ancillary liquidation.
The liquidator, receiver, or statutory successor of an insolvent
member insurer shall permit reasonable access by the association to
the insolvent insurer's records as is necessary for the association
to carry out its duties with regard to covered claims. In addition,
the liquidator, receiver, or statutory successor shall provide the
association with copies of these records upon the reasonable request
of the association and at the expense of the association.

1063.7. When a liquidator, domiciliary or ancillary, is appointed
in this state for any member insurer, the liquidator shall promptly
give notice of his or her appointment and a brief description of the
contents of this article and of the nature and functions of the
association by prepaid first-class mail, to: (a) all persons known or
reasonably expected to have or be interested in claims against the
insurer, at the last known address within this state; (b) all
insureds of the insurer, at the last known address within this state,
accompanied by a notice of the date of termination of insurance; and
(c) the board of governors of the association. Such notice may, but
need not be, combined with the notice provided for in Section 1021.
In the situations where notice is being provided by an ancillary
liquidator, notice is only required to the extent information is
available to provide the notice. The ancillary liquidator may also
rely on the notice provided by the domiciliary liquidator to satisfy
the notice requirements of this section. The liquidator may also
require that producers of record of the insurer give prompt written
notice of the same information, by first-class mail, to their
insureds at the last known address within this state. The liquidator
shall also promptly publish such notice in a newspaper of general
circulation in the county where the insurer had its principal office
in this state not less than once per week, for four weeks, and by
publication elsewhere in this state as the court shall direct.

1063.8. Notwithstanding any other provision of law, the association
shall be exempt from all license fees, income, franchise, privilege,
property, or occupation taxes levied or assessed by this state, any
municipality, county, or other political subdivision of this state.
The rules of the commissioner promulgated pursuant to this article
may exempt the association from: filing an annual statement,
maintaining minimum required capital, paying any fees or
reimbursements, or meeting any other requirement or doing any other
thing required by this code or other laws relating to insurance.

1063.9. (a) The operation of the association shall at all times be
subject to the regulation of the commissioner. The commissioner, or
any deputy or examiner, or any person whom the commissioner shall
appoint, shall have the power of visitation and examination into the
affairs of the association and free access to all books, papers, and
documents that relate to the business of the association, may summon
and qualify witnesses under oath, and may examine officers, agents or
employees, or any other person having knowledge of the affairs,
transactions, or conditions of the association.
(b) Any member insurer aggrieved by any action or decision of the
association may appeal to the commissioner within 30 days after the
action or decision of the association and after exhaustion of
administrative remedies may seek court relief as provided in Section
12940.

1063.10. All orders or decisions of the commissioner made pursuant
to Chapter 1347, Statutes of 1969 (of which this article is a part)
and the provisions thereof as amended from time to time, shall be
subject to judicial review as provided in Section 12940.

1063.11. The commissioner may, upon notice and opportunity for all
interested parties to be heard, issue such rules, regulations and
orders as may be necessary to carry out the provisions of this
article. Such rules and regulations shall be adopted, amended or
repealed in accordance with Chapter 4.5 (commencing with Section
11371) of Part 1 of Division 3 of Title 2 of the Government Code.

1063.12. (a) The association, its member insurers, and its
officers, directors, agents or employees of the association, or its
member insurers, shall under no circumstances be liable for any sum
in excess of the amount of covered claims of the insolvent insurer,
as defined under subdivision (c) of Section 1063.1 of this article
and the costs of administration and the costs of loss adjustment,
investigation and defenses relating to claims thereunder.
(b) Any person or member made a party to any action, suit or
proceeding because such person or member served on the board of
governors or on a committee or was an officer or employee of the
association shall be held harmless and be indemnified by the
association against all liability and costs (including the amounts of
judgments, settlements, fines or penalties) and expenses incurred in
connection with such action, suit or proceeding; provided, however,
such indemnification shall not be provided on any matter in which the
person or member shall be finally adjudged in any such action, suit
or proceeding to have committed a breach of duty involving gross
negligence, dishonesty, willful misfeasance or reckless disregard of
the responsibilities of his office.
(c) The costs and expenses of such indemnification shall be
prorated and paid for by the members in the same manner as provided
in the plan of operations for the proration of premiums.
(d) The provisions of this section shall not be construed as
creating any right in any third person, and shall be applicable only
as between the association and its member insurers and its officers,
directors, agents, or employees of the association or its member
insurers.

1063.13. No member insurer of the association shall engage in the
unlawful trade practice defined and condemned in subdivision (g) of
Section 790.03.

1063.14. (a) The plan of operation adopted pursuant to subdivision
(c) of Section 1063 shall contain provisions whereby each member
insurer is required to recoup over a reasonable length of time a sum
reasonably calculated to recoup the assessments paid by the member
insurer under this article by way of a surcharge on premiums charged
for insurance policies to which this article applies. Amounts
recouped shall not be considered premiums for any other purpose,
including the computation of gross premium tax or agents' commission.
(b) The amount of any surcharge shall be separately stated on
either a billing or policy declaration sent to an insured. The
association shall determine the rate of the surcharge and the
collection period for each category and these shall be mandatory for
all member insurers of the association who write business in those
categories. Member insurers who collect surcharges in excess of
premiums paid pursuant to Section 1063.5 for an insolvent insurer
shall remit the excess to the association as an additional premium
within 30 days after the association has determined the amount of the
excess recoupment and given notice to the member of that amount. The
excess shall be applied to reduce future premium charges in the
appropriate category.
(c) The plan of operation may permit a member insurer to omit
collection of the surcharge from its insureds when the expense of
collecting the surcharge would exceed the amount of the surcharge.
However, nothing in this section shall relieve the member insurer of
its obligation to recoup the amount of surcharge otherwise
collectible.

1063.145. The statement of the amount of surcharge required to be
provided under subdivision (b) of Section 1063.14 shall include a
description of, and purpose for, the California Insurance Guarantee
Association, as follows:
"Companies writing property and casualty insurance business in
California are required to participate in the California Insurance
Guarantee Association. If a company becomes insolvent the California
Insurance Guarantee Association settles unpaid claims and assesses
each insurance company for its fair share.
California law requires all companies to surcharge policies to
recover these assessments. If your policy is surcharged, 'CA
Surcharge' with an amount will be displayed on your premium notice."

1063.15. In any workers' compensation matter the association shall
have the same period of time within which to act or to exercise a
right as is accorded to the insurer by the Labor Code, and those time
periods shall be tolled against the association until 45 days after
the appointment of a domiciliary or receiver.

1063.16. The association, to the extent it determines necessary or
desirable, may request the department to issue bonds pursuant to
Article 14.25 (commencing with Section 1063.50) to provide funds to
pay covered claims of insolvent insurers. The association may act as
agent of the department to collect premium payments levied by the
department on its member insurers. If the association borrows the
proceeds of the bonds from the department, the association may assess
an additional premium, not to exceed 2 percent of the net direct
premium written by the member insurer, to be applied exclusively to
the repayment of the loan. The revenue received from the additional
premium shall be pledged to the repayment of the loan and shall be
used exclusively for that purpose until the bonds have been paid or
provision for the payment of them has been made.

1063.17. (a) All meetings of the board of governors of the
association and its investment and audit committees shall be open and
public, and all persons shall be permitted to attend any meeting of
the association except as otherwise provided in subdivision (g). This
shall apply to meetings conducted in person and via teleconference.
Attendance at telephonically conducted meetings by members of the
public shall be made available by the publication by the association
in its meeting notices as set forth below of a call-in number and
passcode that members of the public may use to participate in the
meeting.
(b) As used in this section, "meeting" includes any congregation
of a majority of the members of the board of governors or the
investment and audit committee, as applicable, at the same time to
hear, discuss, or deliberate upon any item that is within the
responsibility of the association as set forth in this article or in
the association's plan of operations. Notwithstanding the foregoing,
a meeting shall not include any of the following:
(1) Individual contacts or conversations between a member of the
board of governors and any other person, including, but not limited
to, any employee or official of the association, that do not violate
subdivision (c).
(2) The attendance of a majority of the members of the board of
governors or a committee at an industry conference or other gathering
organized by a person or organization other than the association,
provided that a majority of the members do not discuss among
themselves any item that is within the responsibility of the
association as set forth in this article or in the association's plan
of operations.
(3) The attendance of a majority of the members, the board of
governors, or a committee at a purely social or ceremonial occasion,
provided that a majority of the members do not discuss among
themselves any item that is within the responsibility of the
association as set forth in this article or in the association's plan
of operations.
(c) (1) A majority of the members of the board of governors shall
not, outside a meeting authorized by this article, use a series of
communications of any kind, directly or through intermediaries, to
discuss, deliberate, or take action on any item of business that is
within the responsibility of the association as set forth in this
article or in the association's plan of operations.
(2) Paragraph (1) shall not be construed as preventing any
employee or officer of the association from engaging in separate
conversations or communications outside of a meeting authorized by
this article with members of the board of governors in order to
answer questions or provide information regarding matters within the
responsibility of the association, if that person does not
communicate to members of the board of governors the comments or
position of any other member or members of the board.
(d) All meetings of the association authorized under this article
shall comply with the protections and prohibitions contained in
Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C.
Sec. 12132), and the federal rules and regulations adopted in
implementation of that act.
(e) The association shall provide notice of its meetings that are
open and public pursuant to subdivision (a). This notice and an
agenda of items to be discussed shall be provided at least 10 days in
advance of the meeting via the association's Internet Web site, and
the notice shall be published in a newspaper of general circulation
in the State of California. In addition, members of the public may
request notice by regular mail or by e-mail by making a written
request to the association for notice of meetings that are open and
public pursuant to subdivision (a). Notice may be waived, or the
10-day period modified with respect to any particular meeting by the
board of governors of the association upon request submitted to the
commissioner stating the need for a modified notice and exigent
circumstances requiring waiver of the notice requirement at least 24
hours in advance of the meeting time set. The approval of the
commissioner shall be deemed granted if a written denial of the
request for waiver or modification of the notice period is not
received at least four hours prior to the commencement of the meeting
to be conducted under the modified notice. Notice of a meeting that
does not meet the 10-day notice requirement under this subdivision
shall be posted on the association's Internet Web site and provided
by e-mail to members of the public who have made a written request
for e-mail notice to the association of meetings that are open and
public pursuant to subdivision (a). A summary agenda shall be
included in each such notice, but members of the board of governors
may bring additional items of business to any such meeting.
(f) At any meeting where notice is required pursuant to this
section, the association shall reserve time for public comment on the
issues addressed at the meeting.
(g) Nothing in this section shall be construed to prohibit the
board of governors of the association or its investment and audit
committees from holding a closed meeting or a closed session of an
open and public meeting to discuss any of the following subjects:
(1) Bond issuances or other matters relating to borrowings of the
association.
(2) Matters regarding the detection and prevention of insolvency
of members of the association as contemplated by this article.
(3) Nonpublic information received from liquidators, receivers,
and regulators regarding members of the association.
(4) Nonpublic information received from the California Liquidation
Office.
(5) Proprietary information regarding third-party administrators,
vendors that provide products and services in connection with claims
administration, or investments made by the association. Proprietary
information also includes information which the association and its
corresponding out-of-state associations only have access to pursuant
to binding contractual confidentiality provisions.
(6) Nonpublic financial information regarding members of the
association, including information in support of requests for
assessment deferrals.
(7) Statutory interpretations and other advice received from legal
counsel to the association, whether in connection with litigation or
otherwise.
(8) Appointment, employment, evaluation of performance, or
dismissal of any employee or vendor that provides products and
services in connection with claims administration of the association.
(9) Deliberations concerning the purchase, sale, exchange, or
lease of real or personal property, including investment property.
(10) Matters posing a threat of criminal or terrorist activity
against the association, its personnel, or its property.
(11) Covered claims and purported covered claims against the
association.
(12) Disputes and purported disputes with or involving members of
the association.
(13) Any other matters as permitted by the commissioner under the
association's approved plan, provided such matters may be heard in a
closed meeting or a closed session consistent with Section 11126 of
the Government Code.
(h) With respect to any closed meeting or session held as
permitted by subdivision (g), the association shall do both of the
following:
(1) Disclose, prior to the closed meeting or the closed session,
the general nature of the item or items to be discussed in the closed
session. The disclosure may take the form of a reference to the item
or items as they are listed by number or letter on the agenda. In
the closed session, the board of governors may consider only those
matters covered in its disclosure. After any closed session, the
board of governors shall reconvene in open session prior to
adjournment and shall make any reports, provide any documentation, or
make any other disclosures that may be required consistent with this
article. The announcements required to be made in open session
pursuant to this subdivision may be made at the location announced in
the agenda for the closed session, as long as the public is allowed
to be present at that location for the purpose of hearing the
announcement.
(2) Provide periodic reports to the commissioner identifying the
matters covered in each such closed meeting or session and the
provision of subdivision (g) pursuant to which the subject was
discussed.
(i) Nothing in this section shall require or authorize the
disclosure of names or other information that would constitute an
invasion of privacy or otherwise unnecessarily divulge the particular
facts concerning the closed session or the disclosure of which is
prohibited by state or federal law.
(j) The commissioner or his or her designated representative shall
be permitted to attend all meetings of the board of governors and
its investment and audit committees, specifically including closed
meetings and sessions. Any information discussed in closed meetings
or sessions shall be treated by the commissioner and his or her
designated representatives as confidential pursuant to the provisions
of Section 12919.