California Insurance Guarantee Association, Oklahoma Property and Casualty Insurance Guaranty Association, and Texas Property and Casualty Insurance Guaranty Association v. Hill Brothers Transportation, Inc.

ACCEPTED

03-15-00314-CV

6400418

THIRD COURT OF APPEALS

AUSTIN, TEXAS

8/7/2015 10:52:52 AM

JEFFREY D. KYLE

CLERK

CAUSE NO. 03-15-00314-CV

FILED IN

3rd COURT OF APPEALS

IN THE THIRD COURT OF APPEALS AUSTIN, TEXAS

AT AUSTIN 8/7/2015 10:52:52 AM

JEFFREY D. KYLE

Clerk

CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, OKLAHOMA PROPERTY

AND CASUALTY INSURANCE GUARANTY ASSOCIATION, AND TEXAS PROPERTY

AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Appellants

v.

HILL BROTHERS TRANSPORTATION, INC., Appellee

APPEAL FROM CAUSE NO. D-1-GN-09-001010

201ST JUDICIAL DISTRICT COURT OF TRAVIS COUNTY, TEXAS

HON. LORA LIVINGSTON PRESIDING

APPELLANTS’ BRIEF

ORAL ARGUMENT REQUESTED

Dan Price (SBN 24041725)

James Loughlin (SBN 00795489)

STONE LOUGHLIN & SWANSON, LLP

P.O. Box 30111

Austin, Texas 78755

(512) 343-1300

(512) 343-1385 Fax

dprice@slsaustin.com

Attorneys for Appellants

IDENTITY OF PARTIES AND COUNSEL

Appellants/Plaintiffs:

California Insurance Guarantee Association (“CIGA”)

Oklahoma Property and Casualty Insurance Guaranty Association (“OPCIGA”)

Property and Casualty Insurance Guaranty Association (“TPCIGA”)

Counsel for Appellants/Plaintiffs (Trial Court and Appeal):

Dan Price

James Loughlin

STONE LOUGHLIN & SWANSON, LLP

P.O. Box 30111

Austin, Texas 78755

(512) 343-1300

Appellee/Defendant:

Hill Brothers Transportation, Inc. (“Hill Bros.”)

Counsel for Appellee/Defendant (Trial Court and Appeal):

Adrian Ciechanowicz

William Johnson

Leila Melhem

DUGGINS WREN MANN & ROMERO, LLP

P.O. Box 1149

Austin, Texas 78767-1149

(512) 744-9300

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 ii

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

INDEX OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

STATEMENT OF THE CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x

STATEMENT REGARDING ORAL ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . xi

ISSUES PRESENTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii

STATEMENT OF FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

A. About the Guaranty Associations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Guaranty Associations are Statutorily Created

Entities Which Protect Citizens in the Event of an

Insurer’s Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2. The Guaranty Associations have the Authority to

Enforce the Terms of the Policies Within the Scope

of the Act.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. Hill Bros. Was Insured Under the Policy. . . . . . . . . . . . . . . . . . . . . . . 4

C. The Policy Required Hill Bros. to Reimburse Deductibles

Within 30 Days of Demand.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

D. Hill Bros.’ Extra-Contractual Deductible Reimbursement

Arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

E. Legion Liquidation Proceedings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 iii

F. After Liquidation, Pennsylvania Law Required Legion in

Liquidation to Invoice Mutual Indemnity for Hill Bros.’

Deductible Obligation to the Guaranty Associations.. . . . . . . . . . . . 10

G. Hill Bros. Failed to Meet its Contractual Obligations Under

the Policy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

SUMMARY OF ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARGUMENT AND AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Standard of Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ISSUE ONE: Can a guaranty association’s cause of action for breach

of contract for failure to reimburse amounts paid within the

deductibles of a workers’ compensation policy accrue prior to: (1) a

judicial finding that a property and casualty insurer is insolvent

and/or the insurer has been designated impaired by the Texas

Commissioner of Insurance, (2) the guaranty association’s payment

of the deductible amounts that are the subject of its suit, and (3) the

guaranty association making demand for reimbursement?. . . . . . . . . . . . . 19

A. The Guaranty Associations Did Not Have Standing to Take

Any Action Under the Policy on April 1, 2002... . . . . . . . . . . . . . . . 20

1. TPCIGA Did Not Have Standing To Discharge the

Policy Obligations Until at Least October 25, 2002.. . . . . . . . 20

2. CIGA and OPCIGA Did Not Have Standing To

Discharge Policy Obligations Until July 28, 2003.. . . . . . . . . 21

B. On April 1, 2002, the Guaranty Associations Had Not Yet

Paid Any of the Covered Claims For Which They Sued

Hill Bros... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 iv

C. On April 1, 2002, the Guaranty Associations had Not Yet

Made Demand on Hill Bros. for Reimbursement of

Deductibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ISSUE TWO: Is the Guaranty Associations’ compliance with the

Pennsylvania Act a mitigating circumstance making the

reasonableness of their alleged delay in making demand or filing suit

against Hill Bros. a fact question?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ISSUE THREE: Is the Policy a continuing contract that must be fully

performed before the Guaranty Associations’ causes of action for

breach of contract can accrue?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

A. The Policy is a Continuing Contract.. . . . . . . . . . . . . . . . . . . . . . . . . 29

B. The Statute of Limitations Did Not Accrue on This

Continuing Contract Until it was Fully Performed on April

28, 2009.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ISSUE FOUR: Are the Guaranty Associations’ causes of action for

failure to reimburse deductibles barred in whole when some

deductible payments were made within four years from the date suit

was filed?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

CONCLUSION AND PRAYER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

CERTIFICATE OF COMPLIANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

CERTIFICATE OF SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

APPENDIX

TEX. INS. CODE. art. 21.28-C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 1

CAL. INS. CODE §§ 1063.1(c)(1), 1063.2(b). . . . . . . . . . . . . . . . . . . . . . Tab 2

36 OKLA. STAT. ANN. §§ 2004(6), 2004(8), 2007(A)(2). . . . . . . . . . . . Tab 3

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 v

The Policy WC1-1945251.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 4

Wyoming Medical Center, Inc. v. Wyoming Ins.Guar. Ass’n,

225 P.3d 1061, 1068 (Wyo. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 5

40 PA. CONS. STAT. § 221.23a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 6

2004 Pa. Legis. Serv. 2004-46 (S.B. No. 815). . . . . . . . . . . . . . . . . . . . Tab 7

Canal Ins. Co. v. Pro Search,

648 S.E.2d 497, 498 (Ga. Ct. App. 2007).. . . . . . . . . . . . . . . . . . . . . . . Tab 8

AMS Constr. Co., Inc. v. Reliance Ins. Co.,

No. Civ.A. 04-CV-2097, 2004 WL 2600792

(E.D. Penn. Nov. 15, 2004).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tab 9

Final Summary Judgment, dated March 6, 2015. . . . . . . . . . . . . . . . . Tab 10

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 vi

INDEX OF AUTHORITIES

Cases:

AMS Constr. Co., Inc. v. Reliance Ins. Co.,

No. Civ.A. 04-CV-2097, 2004 WL 2600792 (E.D. Penn. Nov. 15, 2004). . . 27-28

Canal Ins. Co. v. Pro Search,

648 S.E.2d 497, 498 (Ga. Ct. App. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . 24, 30-31

Dell Computer Corp. v. Rodriguez,

390 F.3d 377, 392 (5th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Durish v. Channelview Bank,

809 S.W.2d 273, 275-77 (Tex.App.–Austin 1991, writ denied). . . . . . . . . . . . . . . 2

F.D. Stella Products Co. v. Scott,

875 S.W.2d 462, 465 (Tex. App.–Austin 1994). . . . . . . . . . . . . . . . . . . . . . . . 32-33

Hubble v. Lone Star Contracting Corp.,

883 S.W.2d 379, 381 (Tex.App.–Fort Worth 1994. . . . . . . . . . . . . . . . . . . . . 29-30

Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc.,

962 S.W.2d 507, 514 (Tex. 1998). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

KPMG Peat Marwick v. Harrison County Housing Finance Corp.,

988 S.W.2d 746, 748 (Tex. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Latter v. Autry,

853 S.W.2d 836, 839 n.1 (Tex. App.–Austin 1993). . . . . . . . . . . . . . . . . . . . . . . . . 2

Lear Sigler, Inc. v. Perez,

819 S.W.2d 470, 471 (Tex. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Morriss v. Enron Oil & Gas Co.,

948 S.W.2d 858, 869 (Tex.App.–San Antonio 1997).. . . . . . . . . . . . . . . . . . . . . . 18

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 vii

Murray v. San Jacinto Agency, Inc.,

800 S.W.2d 826, 828 (Tex. 1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Myer v. Cuevas,

119 S.W.3d 830, 834 (Tex. App.–San Antonio 2003) .. . . . . . . . . . . . . . . . . . . . . 22

Nixon v. Mr. Property Mgmt. Co.,

690 S.W.2d 546, 548-49 (Tex. 1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Nobles v. Marcus,

533 S.W.2d 923, 927 (Tex. 1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Rhône-Poulenc, Inc. v. Steel,

997 S.W.2d 217, 223 (Tex. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Rolling Lands Investments, L.C. v Nw. Airport Mgmt. L.P.,

111 S.W.3d 187, 196 (Tex. App.–Texarkana 2003). . . . . . . . . . . . . . . . . . . . . . . . 23

Spin Doctor Golf, Inc. v. Paymentech, L.P.,

296 S.W.3d 354, 363 (Tex.App.–Dallas 2009).. . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Stevens v. State Farm Fire and Cas. Co.,

929 S.W.2d 665, 671 (Tex. App.–Texarkana 1996). . . . . . . . . . . . . . . . . . . . . 23, 26

Velsicol Chem. Corp. v. Winograd,

956 S.W.2d 529, 530 (Tex. 1997). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-18

Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,

225 P.3d 1061, 1068 (Wyo. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Statutes:

CAL. INS. CODE §1063.1(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 21

CAL. INS. CODE §1063.2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

36 OKLA. STAT. ANN. § 2004(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 21

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 viii

36 OKLA. STAT. ANN. § 2004(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

36 OKLA. STAT. ANN. § 2007(A)(2) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

40 PA. CONS. STAT. § 221.23a.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 26-28

40 PA. CONS. STAT. § 221.23a(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 26

40 PA. CONS. STAT. § 221.23a(g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 26-27

2004 Pa. Legis. Serv. 2004-46 (S.B. No. 815). . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

TEX. CIV. PRAC. & REM. CODE § 16.004.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

TEX. INS. CODE. art. 21.28-C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

TEX. INS. CODE. art. 21.28-C § 5(8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

TEX. INS. CODE. art. 21.28-C § 5(9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 20

TEX. INS. CODE. art. 21.28-C § 8(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 20

Rules:

TEX. R. APP. P. 9.4(i)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

TEX. R. APP. P. 39.1(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

TEX. R. CIV. P. 166a(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 ix

STATEMENT OF THE CASE

Plaintiffs/Appellants CIGA, OPCIGA, and TPCIGA (collectively, the

“Guaranty Associations”) sued Defendant/Appellee Hill Bros. for breach of contract

in an action filed on March 31, 2009.1 (CR 4). The suit alleges Hill Bros. failed to

reimburse the Guaranty Associations for their payment of workers’ compensation

benefits and claim handling expenses within the per claim deductible limits of a

workers’ compensation policy issued to Hill Bros. by Legion Insurance Company

(“Legion”) identified by policy no. WC1-1945251 (the “Policy”). (CR 295). Hill

Bros. answered alleging the suit was barred by the statute of limitations. (CR 982).

Hill Bros. filed a motion for summary judgment on January 5, 2015 arguing,

among other things, the Guaranty Associations’ claims are barred because the breach

of contract causes of action accrued on April 1, 2002, when Hill Bros. stopped

making its premium and deductible payments to Legion. (CR 2063).

The Honorable Lora Livingston granted Hill Bros.’ summary judgment on

limitations only (CR 3889), explaining in her letter ruling that the Guaranty

Associations had the “duty to sue within four years of the date that Legion’s cause of

action accrued against Hill Brothers.” (CR 3790).

1

The Florida Workers’ Compensation Insurance Guaranty Association, Illinois

Insurance Guaranty Fund, and the Nebraska Property and Liability Insurance Guaranty Association

were also plaintiffs in the Original Petition. These parties were dismissed with prejudice on February

10, 2015, and are not parties to this appeal. (CR 3796).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 x

STATEMENT REGARDING REQUEST FOR ORAL ARGUMENT

The Court should grant oral argument because oral argument would give the

Court a more complete understanding of the facts presented in this appeal, and would

allow the Court to better analyze the complicated legal issues presented in this appeal.

See TEX. R. APP. P. 39.1(c).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 xi

ISSUES PRESENTED

Issue 1: Can a guaranty association’s cause of action for breach of contract for

failure to reimburse amounts paid within the deductibles of a workers’

compensation policy accrue prior to: (1) a judicial finding that a

property and casualty insurer is insolvent and/or the insurer has been

designated impaired by the Texas Commissioner of Insurance, (2) the

guaranty association’s payment of the deductible amounts that are the

subject of its suit, and (3) the guaranty association making demand for

reimbursement?

Issue 2: Is the Guaranty Associations’ compliance with the Pennsylvania Act a

mitigating circumstance making the reasonableness of their alleged

delay in making demand or filing suit against Hill Bros. a fact question?

Issue 3: Is the Policy a continuing contract that must be fully performed before

the Guaranty Associations’ causes of action for breach of contract can

accrue?

Issue 4: Are the Guaranty Associations’ causes of action for failure to reimburse

deductibles barred in whole when some deductible payments were made

within four years of the date suit was filed?

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 xii

CAUSE NO. 03-15-00314-CV

IN THE THIRD COURT OF APPEALS

AT AUSTIN

CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, OKLAHOMA PROPERTY

AND CASUALTY INSURANCE GUARANTY ASSOCIATION, AND TEXAS PROPERTY

AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Appellants

v.

HILL BROTHERS TRANSPORTATION, INC., Appellee

APPEAL FROM CAUSE NO. D-1-GN-09-001010

201ST JUDICIAL DISTRICT COURT OF TRAVIS COUNTY, TEXAS

HON. LORA LIVINGSTON PRESIDING

APPELLANTS’ BRIEF

TO THE HONORABLE COURT OF APPEALS:

Appellants CIGA, OPCIGA, and TPCIGA (collectively, the “Guaranty

Associations”) file this their Appellants’ Brief asking the Court to reverse the

summary judgment granted against them on the issue of limitations.

STATEMENT OF FACTS

A. About the Guaranty Associations

1. Guaranty Associations are Statutorily Created Entities Which Protect

Citizens in the Event of an Insurer’s Insolvency.

The Guaranty Associations are statutory entities created and governed by the

laws of their respective jurisdictions to provide protection to insureds and claimants

against the hardships of property and casualty insurer insolvencies.2 Under the

various guaranty association statutes, upon the entry of an order of liquidation by a

court of competent jurisdiction determining the insolvency of an insurance company

licensed in the state of the guaranty association, or by the designation of a company

as an “impaired insurer” by the Texas Commissioner of Insurance, the Guaranty

Associations become obligated to pay “covered claims” arising under certain policies

issued by the insolvent insurer.

2

Effective April 1, 2007, the Texas Property and Casualty Guaranty Act (the “Texas

Act”) was codified into the TEXAS INSURANCE CODE at chapter 462. The pre-codified Texas Act,

TEX. INS. CODE art. 21.28-C (Vernon), applies to this matter because Legion was designated an

impaired insurer on October 25, 2002, prior to codification. The Court must focus on the Texas Act

as it appeared at the time of impairment for TPCIGA. See Latter v. Autry, 853 S.W.2d 836, 839 n.1

(Tex. App.–Austin 1993) (citing Durish v. Channelview Bank, 809 S.W.2d 273, 275-77

(Tex.App.–Austin 1991, writ denied)). For that reason, all statutory references in this motion refer

to the sections of the Texas Act as provided in the pre-codified TEX. INS. CODE ANN. art. 21.28-C,

in effect on October 25, 2002. The remaining Appellants’ statutory obligations were triggered on

July 28, 2003, when the Commonwealth Court of Pennsylvania issued its Order of Liquidation of

Legion. This brief cites to the guaranty statutes in California (the “California Act”) and Oklahoma

(the “Oklahoma Act”) which were in effect on July 28, 2003.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 2

“Covered claims,” in general, are claims arising out of and within the coverage

of a policy of insurance issued by an insolvent insurer to a resident of the state of the

guaranty association’s domicile.3

2. The Guaranty Associations have the Authority to Enforce the Terms of

the Policies Within the Scope of the Act.

To maintain sufficient assets to fulfill their statutory purpose, the Guaranty

Associations’ liability is strictly limited to payment of “covered claims.” The

Guaranty Associations are empowered to enforce the duties and obligations imposed

on the insured under any policy of insurance within the scope of the guaranty statutes,

including enforcing the obligation to pay deductibles.4

3

See CAL. INS. CODE ANN. § 1063.1(c)(1) (West 2002) (California: “covered claim”

means an unpaid “obligation[] of an insolvent insurer . . . within the coverage of an insurance policy

of the insolvent insurer . . . presented as a claim to the . . . [guaranty] association . . . ; which were

incurred prior to the date coverage . . . terminated and prior to, on, or within 30 days after the

liquidator was appointed; . . . in the case of a policy of workers’ compensation insurance, to provide

workers’ compensation benefits under the workers’ compensation laws of [California]”); 36 OKLA.

STAT. ANN. § 2004(6) (West 2002) (Oklahoma: “‘Covered claim’ means an unpaid claim of an

insured or third party liability claimant . . . which arises out of and is within the coverage . . . of an

insurance policy to which [the Oklahoma act] applies and is issued by . . . an insolvent insurer . . .

and . . . the claimant or insured is a resident of [Oklahoma] at the time of the insured event. . . .”);

and TEX. INS. CODE art. 21.28-C § 5(8) (Texas: “‘Covered claim’ means an unpaid claim of an

insured or third-party liability claimant that arises out of and is within the coverage . . . of an

insurance policy to which this Act applies, issued . . . by an insurer licensed to do business in

[Texas], if that insurer becomes an impaired insurer and the third-party claimant or liability claimant

or insured is a resident of [Texas] at the time of the insured event. . . .”).

4

CAL. INS. CODE ANN. § 1063.2(b) (West 2002) (CIGA “shall have the same rights as

the insolvent insurer would have had if not in liquidation. . . .”); 36 OKLA. STAT. ANN. § 2007(A)(2)

(West 2002) (OPCIGA shall “[b]e deemed the insurer to the extent of the obligations on covered

claims and to that extent shall have all rights, duties and obligations of the insolvent insurer as if the

insurer had not become insolvent.”); and TEX. INS. CODE. art. 21.28-C § 8(b) (TPCIGA shall

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 3

B. Hill Bros. Was Insured Under the Policy

Hill Bros. was insured under a workers’ compensation insurance policy issued

by Legion for policy period September 1, 2001, through September 1, 2002,

identified by policy no. WC1-1945251.5 (CR 2513). The Policy contained large

deductible endorsements under which Hill Bros. received a substantial premium

discount, but which required Hill Bros. to reimburse Legion for the first $250,000 of

claims and claim handling expenses paid on each claim. (CR 2044; CR 2506 at ¶¶5-6;

CR 2513-2514; CR 2914 ¶4).

C. The Policy Required Hill Bros. to Reimburse Deductibles Within 30 Days

of Demand

The deductible endorsements in the Policy required Hill Bros. to reimburse

Legion for the amounts paid within the deductible within 30 days after demand was

made by Legion. None of the endorsements required Legion to make demand within

“discharge the policy obligations of the impaired insurer, . . . to the extent that the policy obligations

are covered claims under [the Texas guaranty act],” and shall “enforce any duty imposed on the

insured party or beneficiary under the terms of any policy of insurance within the scope of [the Texas

guaranty act].”). See Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,

225 P.3d 1061, 1068 (Wyo. 2010) (holding that the Wyoming Insurance Guaranty Association was

“entitled to reimbursement of deductibles just as [the insurer] would have been had it remained

solvent.”).

5

A true and correct copy of the Policy is provided for the Court’s convenience at Tab

4 of the Appendix.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 4

a specified time frame. The applicable provisions from the Kansas, Nebraska,

Oklahoma, and Texas deductible endorsements provide as follow:

Kansas:

6. We will have the right at our discretion, to pay any amounts

within the deductible amounts or to pay allocated loss adjustment

expenses to effect settlement of any claim or suit, and you shall

reimburse us for any sums we may have paid.

7. Upon notification of payments by us, you will promptly reimburse

us for any such amounts that we have paid. If you fail to

reimburse us, we may, at our option, cancel either this

endorsement or this policy by mailing or delivering to you not

less than ten days advance written notice stating when the

cancellation is to take effect. Any resulting return premium may

be applied to the reimbursement amounts due.

(CR 2552).

Nebraska:

6. We will have the right at our sole discretion to pay any amounts

within the deductible amounts or to pay allocated loss adjustment

expenses to effect settlement of any claim or suit, and you shall

reimburse us for any sums we may have paid.

7. Upon notification of payments by us, you will promptly reimburse

us for any such amounts that we have paid. If you fail to

reimburse us, we may, at our option, cancel either this

endorsement or this policy by mailing or delivering to you not

less than ten days advance written notice stating when the

cancellation is to take effect. Any resulting return premium may

be applied to the reimbursement amounts due.

(CR 2557).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 5

Oklahoma:

6. We will have the right at our sole discretion, to pay any amounts

within the large deductible limits or to pay allocated loss

adjustment expenses within the large deductible limits to effect

settlement of any claim or suit, and you shall reimburse us for any

sums we may have paid.

7. Upon notification of payments by us, you will promptly reimburse

us for any such amounts that we have paid. If you fail to

reimburse us, we may cancel this endorsement by mailing or

delivering to you not less than ten days advance written notice

stating when the cancellation is to take effect. We will remain

fully responsible for the full amount of all claims incurred prior

to the effective date of cancellation. The failure to reimburse the

insurer will not affect coverage for an eligible insured employee

under the policy.

(CR 2559-2560).

Texas:

4. We will pay the deductible amount for you, but you must

reimburse us within 30 days after we send you notice that

payment is due. We will send you notice that payment is due on

a periodic basis, but not more frequently than on a monthly basis.

If you fail to fully reimburse us when due, we may cancel the

policy for nonpayment of premium. We may keep the amount of

unearned premium that will reimburse us for the payments we

made. These rights are in addition to other rights we have to be

reimbursed.

(CR 2554).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 6

D. Hill Bros.’ Extra-Contractual Deductible Reimbursement Arrangement

To meet its deductible reimbursement obligation to Legion under the Policy,

Hill Bros. entered into a three-part, extra-contractual deductible reimbursement

arrangement with third parties Mutual Indemnity (Bermuda) Ltd. (“Mutual

Indemnity”) and Mutual Holdings (Bermuda) Ltd. (“Mutual Holdings”).

Under the first part of the arrangement, Hill Bros. executed a Deductible

Reimbursement Policy with Mutual Indemnity pursuant to which Mutual Indemnity

paid the deductible amounts due under the Policy directly to Legion on Hill Bros.’

behalf. (CR 2935-2936). The Deductible Reimbursement Policy created a course of

action whereby Legion billed Mutual Indemnity for deductibles due under the Policy

while Mutual Indemnity made all deductible reimbursement payments directly to

Legion. (CR 2507 ¶¶8, 10).

As a condition of its Deductible Reimbursement Policy with Mutual Indemnity,

and representing the second part of the arrangement, Hill Bros. was required to

comply with the requirements of a Shareholder Agreement which it executed with

Mutual Holdings. (CR 2935). The Shareholder Agreement stated that Hill Bros.

would provide sufficient funds to both Mutual Indemnity and Mutual Holdings to

indemnify each for any losses that they may suffer in administering the Deductible

Reimbursement Policy for Hill Bros. The provision obligated Hill Bros. to provide

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 7

payment or collateral to Mutual Holdings or Mutual Indemnity following 30 days

written notice that additional payments were needed so that Mutual Indemnity could

make the required deductible reimbursement payments to Legion.

The third part of the arrangement was an excess of loss reinsurance agreement

between Mutual Indemnity and Legion which created an aggregate limit of liability

on Mutual Indemnity’s obligations under its Deductible Reimbursement Policy with

Hill Bros. (CR 2507 ¶9, CR 2567).

Despite this complex arrangement with Mutual Indemnity and Mutual

Holdings, Hill Bros. remained directly liable to Legion under the Policy for the

deductible payments made on Hill Bros.’ behalf.

E. Legion Liquidation Proceedings

Effective April 1, 2002, the Commonwealth Court of Pennsylvania placed

Legion in receivership for rehabilitation, naming the Pennsylvania Insurance

Commissioner as Rehabilitator (“Order of Rehabilitation”). (CR 2083 ¶2).

Pursuant to the Order of Rehabilitation, the Rehabilitator was prohibited from

disavowing any policies or contracts of insurance as a result of the rehabilitation. The

order expressly stated: “The entry of this Order of Rehabilitation shall not constitute

an anticipatory breach of any such contracts.” (CR 2087 ¶17).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 8

On October 23, 2002, an ancillary receiver was appointed and Legion was

declared insolvent by the 200th Judicial District Court of Travis County, Texas. On

October 25, 2002, the Commissioner of Insurance of the State of Texas issued an

Order of Impairment designating Legion as an impaired insurer (“Impairment

Order”). (CR 2912). The ancillary receivership order and the Impairment Order

triggered the statutory obligations of TPCIGA to pay “covered claims” under policies

of insurance issued by Legion, including the Policy at issue in this case.

Effective July 28, 2003, the Commonwealth Court of Pennsylvania declared

Legion insolvent, entered an order of liquidation with a finding of insolvency

(“Liquidation Order”), and named the Pennsylvania Commissioner as Legion’s

“Liquidator.”6 (CR 2903). The Liquidation Order triggered the statutory obligations

of CIGA and OPCIGA to pay “covered claims” under the policies of insurance issued

by Legion, including the Policy at issue in this case.

Beginning with the issuance of these orders, the Guaranty Associations began

paying “covered claims” under the Policy.

6

Effective July 28, 2003, Legion became “Legion in Liquidation,” the entity is

identified by this name for events occurring after this date.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 9

CIGA’s first payment on a “covered claim” was issued on March 4, 2003 (CR

2975, see $622), and CIGA’s last payment on a “covered claim” was issued on April

24, 2007. (CR 2977, see $84 payment).

OPCIGA’s first payment on a “covered claim” was issued on September 24,

2003 (CR 2885, see $528 payment), and OPCIGA’s last payment on a “covered

claim” was issued on April 28, 2009, after suit was filed. (CR 2890, see $112.40

payment).

TPCIGA’s first payment on a “covered claim” was issued on October 7, 2003

(CR 2898, see $3,556 payment), and TPCIGA’s last payment on a “covered claim”

was issued on February 19, 2007. (CR 2897, see $3.78 payment).

In total, the Guaranty Associations paid $274,188.94 in unreimbursed “covered

claims” within the deductible limits of the Policy. (CR 2719).7

F. After Liquidation, Pennsylvania Law Required Legion in Liquidation to

Invoice Mutual Indemnity for Hill Bros.’ Deductible Obligation to the

Guaranty Associations

Although the orders triggered the Guaranty Associations’ statutory obligations

to make payments under the Policy, Pennsylvania law required Legion in Liquidation

to continue to invoice Mutual Indemnity and collect reimbursement for the payments

7

Of this total, CIGA paid $29,648.82, OPCIGA paid $126,209.00, and TPCIGA paid

$117,770.12. (CR 2719).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 10

the Guaranty Associations made on Hill Bros.’ behalf within the deductible limits

under the Policy. See 40 PA. CONS. STAT. § 221.23a (2004).8

In accordance with 40 PA. CONS. STAT. § 221.23a(g) (2004) (the “Pennsylvania

Act”), after collecting deductible reimbursements paid by Mutual Indemnity on Hill

Bros.’ behalf, Legion in Liquidation was then required to reimburse the Guaranty

Associations for the claims payments which the Guaranty Associations made in

accordance with Policy. If efforts at collection from Mutual Indemnity for

reimbursement of deductibles paid by the Guaranty Associations failed, the

Pennsylvania Act required Legion in Liquidation to then bill Hill Bros. for

reimbursement of deductibles. Id.

From the inception of the Policy through at least mid-2005, Legion in

Liquidation invoiced Mutual Indemnity for the payments it and the Guaranty

Associations made within the deductible limits on the Policy. (CR 2507-2508). Until

at least mid-2005, Mutual Indemnity made reimbursement payments to Legion on Hill

Bros.’ behalf. (CR 2507-2508, CR 2050).

8

A true and correct copy of 40 PA. CONS. STAT. § 221.23a (2004), is included in the

Appendix to this Brief.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 11

G. Hill Bros. Failed to Meet its Contractual Obligations Under the Policy

On or about August 22, 2005, Mutual Indemnity sent Hill Bros. a request for

additional funds required to meet Hill Bros.’ deductible obligations under the Policy.

(CR 2940). Hill Bros. failed and refused to provide the requested funds to Mutual

Indemnity contrary to the contractual arrangement among Mutual Indemnity, Mutual

Holdings, and Hill Bros. After a second request on October 11, 2005 by Mutual

Indemnity was fruitless, Mutual Indemnity referred the file to Legion in Liquidation

for collection. (CR 2943, CR 2945).

Because efforts at collection from Mutual Indemnity failed, in accordance with

the Pennsylvania Act, Legion in Liquidation sent collection letters to Hill Bros. on

December 14, 2005, January 13, 2006, June 28, 2006, and June 24, 2008. The letters

demanded reimbursement of the deductible amounts paid by Legion and the Guaranty

Associations under the Policy.

The December 14, 2005 letter explained to Hill Bros. why Legion in

Liquidation was seeking reimbursement directly from Hill Bros., and stated that the

amount due within the deductibles was limited by the extra-contractual arrangement

among Legion, Mutual Indemnity, and Hill Bros. The total amount then demanded

was $145,373.27. (CR 2945). The January 13, 2006 letter enclosed a copy of the

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 12

December letter and asked that the deductible reimbursement liability be “addressed

without further delay.” (CR 2951).

The June 28, 2006 letter explained that Mutual Indemnity provided an

additional $30,823.75 to Legion in Liquidation on Hill Bros.’ behalf and that Hill

Bros.’ deductible reimbursement liability, as limited by the extra-contractual

arrangement, was now reduced to $114,549.52. (CR 2952).

As a result of this additional payment by Mutual Indemnity, Legion in

Liquidation was fully reimbursed for the amounts Legion had paid on Hill Bros.’

behalf within the deductibles of the Policy. (CR 2719). Following this payment by

Mutual Indemnity, however, deductible amounts remained due to the Guaranty

Associations. (CR 2719).

In its June 24, 2008 demand letter, Legion in Liquidation advised Hill Bros.

that it was referring for collection to the Guaranty Associations the unreimbursed

deductible amounts due to the Guaranty Associations. Hill Bros. was advised that the

Guaranty Associations may pursue all claims and claim handling expenses paid

within the per-claim deductible limits regardless of any extra-contractual arrangement

among Hill Bros., Legion, and Mutual Indemnity. (CR 2968).

On March 13, 2009, the Guaranty Associations sent to Hill Bros a demand

letter for the total amount of unreimbursed deductible payments made on Hill Bros.’

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 13

behalf by the Guaranty Associations. In the letter, the Guaranty Associations

explained that Legion’s Reinsurance Agreement with Mutual Indemnity is not within

the coverage of the applicable guaranty statutes. Therefore, the Aggregate Cap that

limited Legion in Liquidation’s collection to $114,549.52 did not in any way limit the

Guaranty Associations’ collection of the entire sum which they have paid within the

deductible limits on the Policy. (CR 2970-2971).

Hill Bros. never reimbursed the Guaranty Associations for the outstanding

deductible amounts.

On March 31, 2009, the Guaranty Associations filed their original petition in

this case alleging Hill Bros. breached its contractual obligations under the Policy by

failing and refusing to reimburse the Guaranty Associations for their payment of

claims and claims handling expenses within the per claim deductible limit of the

Policy.9 (CR 7).

9

The Florida Workers’ Compensation Insurance Guaranty Association, Illinois

Insurance Guaranty Fund, and the Nebraska Property and Liability Insurance Guaranty Association

were plaintiffs in the Original Petition. These parties were dismissed with prejudice on February 10,

2015, and are not parties to this appeal. (CR 3796).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 14

SUMMARY OF ARGUMENT

The District Court erred in granting summary judgment because the statute of

limitations does not bar the Guaranty Associations’ right to recover their payment of

“covered claims” within the deductible limits of the Policy. The statute of limitations

cannot accrue against the Guaranty Associations for breach of the deductible

reimbursement provisions until at least three events occur. First, the statutory

obligation to pay “covered claims” must be triggered by an adjudication of an

insurer’s insolvency by a court of competent jurisdiction and, in the case of TPCIGA,

the designation of the insurer as an “impaired insurer” by the Texas Commissioner

of Insurance. Second, the Guaranty Associations must have paid the “covered claims”

for which they seek reimbursement in this suit. And third, the Guaranty Associations

must have made demand for reimbursement of the deductible amounts and Hill Bros.

must have failed to reimburse the Guaranty Associations within thirty days of the

demand. Because none of these three events occurred by April 1, 2002, the District

Court’s summary judgment is wrong as a matter of law.

Any alleged delay in the Guaranty Associations’ making demand or filing of

this suit was caused by their compliance with the Pennsylvania Act. Whether or not

the Guaranty Associations’ compliance with the Pennsylvania Act was reasonable is

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 15

a fact question that must be presented to the trier of fact, and this outstanding fact

question precludes summary judgment.

Regardless of any alleged delay in making demand or filing suit, the Guaranty

Associations contend their suit was timely filed within the limitations period. The

Policy was a continuing contract requiring ongoing payments of workers’

compensation benefits for the benefit of Hill Bros.’ injured employees. The Policy

was not fully performed by the Guaranty Associations until April 28, 2009. Because

this suit for breach of a continuing contract was filed on March 31, 2009, prior to the

date the Policy was fully performed, the statute of limitations does not bar the

Guaranty Associations’ claims.

Alternatively, the Guaranty Associations’ breach of contract claims are not

completely barred by limitations because the Guaranty Associations made payments

within the deductible limits of the Policy within four years of the date suit was filed.

Even if earlier payments are barred by the statute of limitations, the Guaranty

Associations submit the statute of limitations would not bar their recovery of

deductible payments made within four years of the date they filed suit.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 16

ARGUMENT AND AUTHORITIES

The District Court erred in granting summary judgment to Hill Bros. based on

the statute of limitations affirmative defense because the accrual date identified by the

court, April 1, 2002, is wrong as a matter of law. Alternatively, the District Court

erred because the Guaranty Associations raised a fact issue regarding the date their

causes of action accrued.

Standard of Review

The standard for review of a summary judgment is whether the successful

movant met its burden to show that there is no genuine issue of material fact and that

it is entitled to judgment as a matter of law. KPMG Peat Marwick v. Harrison County

Housing Finance Corp., 988 S.W.2d 746, 748 (Tex. 1999) (citing Lear Sigler, Inc.

v. Perez, 819 S.W.2d 470, 471 (Tex. 1991); Nixon v. Mr. Property Mgmt. Co., 690

S.W.2d 546, 548-49 (Tex. 1985)); TEX. R. CIV. P. 166a(c). In conducting its review,

the appellate court shall “take as true all evidence favorable to the nonmovant, and

. . . make all reasonable inferences in the nonmovant’s favor.” KPMG Peat Marwick,

988 S.W.2d at 748 (citing Nixon, 690 S.W.2d at 548-49).

A defendant moving for summary judgment on a limitations affirmative

defense has the burden to conclusively establish the defense. Rhône-Poulenc, Inc. v.

Steel, 997 S.W.2d 217, 223 (Tex. 1999) (citing Velsicol Chem. Corp. v. Winograd,

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 17

956 S.W.2d 529, 530 (Tex. 1997)). First, the movant must establish the applicable

limitations period. Second, the defendant must prove when the cause of action

accrued. “A cause of action generally accrues, and the statute of limitations begins to

run, when facts come into existence that authorize a claimant to seek a judicial

remedy.” Johnson & Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507,

514 (Tex. 1998) (citing Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828

(Tex. 1990)). If the movant meets its burden, the nonmovant must then raise a fact

issue to avoid summary judgment. Id. (internal citations omitted).

The applicable limitations period for the Guaranty Associations’ breach of

contract suit is four years from the date the causes of action accrued. Morriss v. Enron

Oil & Gas Co., 948 S.W.2d 858, 869 (Tex.App.–San Antonio 1997); TEX. CIV. PRAC.

& REM. CODE § 16.004.

The District Court erred in granting summary judgment because the April 1,

2002 accrual date identified by the court is wrong as a matter of law, and because the

Guaranty Associations raised a fact issue about when their causes of action accrued.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 18

Issue 1: Can a guaranty association’s cause of action for breach

of contract for failure to reimburse amounts paid

within the deductibles of a workers’ compensation

policy accrue prior to: (1) a judicial finding that a

property and casualty insurer is insolvent and/or the

insurer has been designated impaired by the Texas

Commissioner of Insurance, (2) the guaranty

association’s payment of the deductible amounts that

are the subject of its suit, and (3) the guaranty

association making demand for reimbursement?

The answer to this question is no. Before a guaranty association’s breach of

contract claim for failure to reimburse deductibles can accrue, at least three events

must occur. First, the guaranty association’s statutory obligation to pay “covered

claims” of an insolvent insurer must be triggered by order of a court of competent

jurisdiction based on a judicial finding of insolvency and by the Texas Commissioner

of Insurance’s designation that the insurer is impaired. Second, the guaranty

association must pay the amounts within the deductible limits of the policy that are

the subject of its suit. And finally, the guaranty association must make demand to the

insured for reimbursement of the amounts paid within the deductibles.

In this case, the District Court erred because none of these events had occurred

on April 1, 2002.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 19

A. The Guaranty Associations Did Not Have Standing to Take Any Action

Under the Policy on April 1, 2002

The Guaranty Associations are statutory entities created and governed by the

laws of their respective jurisdictions. They become obligated to pay “covered claims”

under policies of insurance issued by insolvent or impaired insurance carriers as

provided in their respective enabling statutes.

On April 1, 2002, the Guaranty Associations’ statutory obligations to pay

“covered claims” had not been triggered by their enabling statutes.

1. TPCIGA Did Not Have Standing To Discharge the Policy Obligations

Until At Least October 25, 2002

In accordance with the Texas Act, TPCIGA becomes obligated to discharge the

policy obligations of a member insurer when that insurer is “placed in temporary or

permanent receivership under an order of a court of competent jurisdiction . . . based

on a finding of insolvency and . . . has been designated an impaired insurer by the

[Texas Commissioner of Insurance].” TEX. INS. CODE art.21.28-C, § 5(9), 8(b).

In this case, Legion was placed in ancillary receivership and a judicial finding

of insolvency was entered by the 200th Judicial District Court, Travis County, on

October 23, 2002. On October 25, 2002, the Texas Commissioner of Insurance

entered the Impairment Order designating Legion an impaired insurer. TPCIGA’s

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 20

statutory obligations were triggered upon entry of the October 25, 2002 Impairment

Order.

Prior to October 25, 2002, TPCIGA had no authority to pay claims or otherwise

discharge the policy obligations of Legion—including the authority to sue Hill Bros.

for breach of the deductible endorsements of the Policy. Because TPCIGA did not

have authority to sue Hill Bros. for breach of the Policy on April 1, 2002, TPCIGA’s

cause of action against Hill Bros. did not accrue on that date.

2. CIGA and OPCIGA Did Not Have Standing To Discharge the Policy

Obligations Until July 28, 2003

Under the California Act and the Oklahoma Act, CIGA’s and OPCIGA’s

statutory obligations are triggered when a court of competent jurisdiction enters an

order of liquidation with a finding of insolvency against a member insurer. CAL. INS.

CODE § 1063.1(c)(1); 36 OKLA. STAT. ANN. § 2004(8). Effective July 28, 2003, the

Commonwealth Court of Pennsylvania entered against Legion the Liquidation Order

with a finding of insolvency.

Prior to July 28, 2003, neither CIGA nor OPCIGA had authority to pay claims

or discharge the policy obligations of Legion—including the authority to sue Hill

Bros. for breach of the Policy. Because CIGA and OPCIGA did not have authority

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 21

to sue Hill Bros. for breach of the Policy on April 1, 2002, their causes of action

against Hill Bros. did not accrue on that date.

B. On April 1, 2002, the Guaranty Associations Had Not Yet Paid Any of the

Covered Claims For Which They Sued Hill Bros.

No cause of action may accrue to the benefit of a plaintiff until its legal right

to reimbursement is breached. See Myer v. Cuevas, 119 S.W.3d 830, 834 (Tex.

App.–San Antonio 2003) (“Without breach of a legal right belonging to the plaintiff,

no cause of action can accrue to his benefit.”) (citing Nobles v. Marcus, 533 S.W.2d

923, 927 (Tex. 1976)).

In this case, the Guaranty Associations sued Hill Bros. for failure to reimburse

on demand the Guaranty Associations for their payment of covered claims within the

deductible limits of the Policy. All of the payments subject to the Guaranty

Associations’ suit occurred after their statutory obligations were triggered (i.e., after

October 25, 2002, for TPCIGA, and after July 28, 2003, for CIGA and OPCIGA). The

Guaranty Associations had no right to reimbursement for their deductible payments

they made until they actually made the deductible payments for which they sued.

The first payments by each of the Guaranty Associations of a “covered claim”

under the Policy were made on the following dates: CIGA, March 4, 2003; OPCIGA,

September 24, 2003; and TPCIGA, October 7, 2003.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 22

Because on April 1, 2002, the Guaranty Associations had not yet made any

deductible payments under the Policy, as a matter of law, their causes of action did

not accrue on April 1, 2002.

C. On April 1, 2002, the Guaranty Associations had Not Yet Made Demand

on Hill Bros. for Reimbursement of Deductibles.

“[W]hen demand is an integral part of a cause of action, or demand is a

condition precedent to the right to sue, the statute of limitations does not begin to run

until demand has been made unless the right to make a demand was waived or

unreasonably delayed.” Rolling Lands Investments, L.C. v Nw. Airport Mgmt. L.P.,

111 S.W.3d 187, 196 (Tex. App.–Texarkana 2003) (internal citations omitted). See

Stevens v. State Farm Fire and Cas. Co., 929 S.W.2d 665, 671 (Tex. App.–Texarkana

1996).

The deductible endorsements in the Policy required Legion (prior to liquidation

and impairment) and the Guaranty Associations (after liquidation and impairment)

to make demand on Hill Bros. for reimbursement of deductible amounts. The

endorsements do not specify a time by which demand had to be made, only that Hill

Bros. must “promptly reimburse” the deductibles or reimburse the deductibles “within

30 days.” See e.g., (CR 2552) (“Upon notification of payments by us, you will

promptly reimburse us for any such amounts that we have paid.”); (CR 2557) (same);

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 23

CR 2559-60(same); and CR 2554 (“We will pay the deductible amount for you, but

you must reimburse us within 30 days after we send you notice that payment is due.

We will send you notice that payment is due on a periodic basis, but not more

frequently than on a monthly basis.”). Absent a demand, Hill Bros. would have no

notice of the amounts paid within the deductibles for which it is liable and for which

payment was due under the Policy.

In Canal Ins. Co. v. Pro Search, 648 S.E.2d 497, 498 (Ga. Ct. App. 2007), a

Georgia appellate court reached the same conclusion in construing similar deductible

endorsement language in a workers’ compensation policy. The endorsement in Canal

read, “We will pay the deductible amount for you to the claimant or provider of

services, but you must reimburse us within 30 days after we sent you notice that

payment is due.” Id. The court explained, “Under the clear language of the contract,

payment was not due until 30 days after [the insurer] sent notice to [the policyholder]

of the amount due. Accordingly, there could have been no suit under the contract until

notice was sent.” Id. That court held that the statute of limitations did not begin to run

on the insurer’s deductible reimbursement claim until demand had been made. Id.

Because on April 1, 2002, the Guaranty Associations had not yet made demand

for reimbursement of amounts they paid within the deductible limits of the Policy,

their causes of action for failure to reimburse deductibles did not accrue on that date.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 24

A cause of action for breach of contract did not accrue against the Guaranty

Associations on April 1, 2002, because as of that date: (1) their statutory obligations

had not been triggered in accordance with their respective enabling statutes, (2) the

Guaranty Associations had not yet paid the deductibles for which they filed suit in

this case, and (3) the Guaranty Associations had not yet made demand for

reimbursement of the deductible payments they had yet to make. None of these three

events occurred by April 1, 2002. Therefore, the District Court erred in granting

summary judgment to Hill Bros. on its limitations defense.

Issue 2: Is the Guaranty Associations’ compliance with the

Pennsylvania Act a mitigating circumstance making the

reasonableness of their alleged delay in making demand

or filing suit against Hill Bros. a fact question?

Yes. The Guaranty Associations’ compliance with the Pennsylvania Act is a

mitigating circumstance which requires the finder of fact to determine whether the

Guaranty Associations’ alleged delay in making demand or filing suit for

reimbursement was reasonable.

Demand for reimbursement of deductibles is a prerequisite to filing suit against

Hill Bros. for failure to reimburse the Guaranty Associations for the amounts they

have paid within the deductibles under the Policy. “Where demand is a prerequisite

to a right of action, the injured party must make the demand within a reasonable time

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 25

after it may lawfully be made.” Stevens v. State Farm Fire and Cas. Co., 929 S.W.2d

665, 671 (Tex. App.–Texarkana 1996) (internal citations omitted). “The

reasonableness of the delay is normally a fact question, but in the absence of

mitigating circumstances, the law will ordinarily consider a reasonable time as being

coincident with the running of the statute, and an action will be barred if a demand

is not made within that period.” Id. (internal citations omitted).

On June 28, 2004, after the Liquidation Order was entered and while the

delinquency proceeding was still open and pending, the Pennsylvania Legislature

passed into law S.B. No. 815, section 523.1, codified at 40 PA. CONS. STAT. §

221.23a (West 2004).10

In accordance with 40 PA. CONS. STAT. § 221.23a, the law governing the

delinquency proceeding, Legion in Liquidation was required to invoice and collect

from offshore insurer Mutual Indemnity the deductible payments the Guaranty

Associations made on Hill Bros.’ behalf in accordance with the Deductible

Reimbursement Policy Hill Bros. obtained for this purpose. See 40 PA. CONS. STAT.

§§ 221.23a(f) & (g) (2004). After collecting the deductibles, Legion in Liquidation

10

In accordance with its terms, Section 523.1 became immediately effective: “This act

shall take effect immediately.” 2004 Pa. Legis Serv. 2004-46 (S.B. 815). Section 221.23a(l) states,

“This section will apply to all delinquency proceedings which are open and pending as of the

effective date of this section.” S.B. 815 was approved on June 28, 2004. Because the delinquency

proceeding of Legion in Liquidation was open and pending on June 28, 2004, 40 PA. CONS. STAT.

§ 221.23a applies to the Legion in Liquidation delinquency proceeding.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 26

was then required to reimburse the Guaranty Associations for the deductible

payments they had made in accordance with the Policy. Id.

The Guaranty Associations were not permitted to initiate their own collection

efforts until Legion in Liquidation failed to make a good faith effort to collect

deductibles. See 40 PA. CONS. STAT. § 221.23a (g). Legion in Liquidation pursued

collection efforts through June 24, 2008, when it turned over collection of deductibles

to the Guaranty Associations.

Notably, in a different Pennsylvania delinquency proceeding, the Florida

Workers’ Compensation Insurance Guaranty Association filed a motion to intervene

to protect its right to deductible reimbursements in an action between the

Pennsylvania Liquidator and an insured employer. AMS Constr. Co., Inc. v. Reliance

Ins. Co., No. Civ.A. 04-CV-2097, 2004 WL 2600792 (E.D. Penn. Nov. 15, 2004).

Construing the statutory language of 40 PA. CONS. STAT. § 221.23a, the court

explained:

A review of the language of Pennsylvania’s statute establishes that a

scheme is in place whereby the Pennsylvania Commissioner, as receiver,

has the primary duty to collect unpaid deductible amounts under

Pennsylvania law . . . . This statutory scheme provides a mechanism for

the prompt payment of a guaranty association’s fair share of deductible

reimbursements. It further delineates the rights and remedies of the

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 27

guaranty association in pursuing its own claims should the receiver not

make a good faith effort to collect the reimbursements.11

Id. at *4. Under 40 PA. CONS. STAT. § 221.23a, the court concluded, “[T]he

Pennsylvania Commissioner, as receiver, has the statutory right and obligation to

represent all state guaranty associations in connection with deductible amounts owed

by policyholders.” AMS Constr., 2004 WL 2600792 at *5. Until the receiver failed

to meet this statutory obligation, under 40 PA. CONS. STAT. § 221.23a, the guaranty

associations were not permitted to collect deductibles. AMS Constr. 2004 WL

2600792 at *5.

In this case, the Legion Liquidator also had the primary duty to collect

deductibles from Hill Bros., and the Guaranty Associations were not permitted to

collect until the Liquidator failed to meet its statutory obligation. This occurred on

or after June 24, 2008, when Legion in Liquidation referred collection to the

Guaranty Associations.

The Guaranty Associations made their demand and filed their original petition

in March 2009, only nine months after collection efforts were turned over by Legion

11

Although referred to as “receiver” throughout the case, the court in AMS Constr.

recognized that the “Pennsylvania Commissioner of Insurance, was appointed statutory liquidator

of [the insurer].” AMS Constr., 2004 WL 2600792 at *1, n.1.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 28

in Liquidation in accordance with the Pennsylvania Act. Compliance with the

Pennsylvania Act is itself a mitigating circumstance which makes the reasonableness

of any alleged delay in making demand or filing suit against Hill Bros. a fact

question.

Because the reasonableness of the Guaranty Associations’ alleged delay in

filing suit is a fact question, the District Court erred in granting summary judgment

to Hill Bros.

Issue 3: Is the Policy a continuing contract that must be fully

performed before the Guaranty Associations’ causes of

action for breach of contract can accrue?

Yes. The Policy was a continuing contract which required the Guaranty

Associations to make ongoing and indivisible payments of workers’ compensation

benefits for the benefit of Hill Bros.’ injured employees. Because the Policy was not

fully performed until all workers’ compensation benefits were paid to Hill Bros.’

injured employees, the Guaranty Associations’ causes of action for failure to

reimburse deductibles did not accrue until that date.

A. The Policy is a Continuing Contract

A continuing contract is an agreement in which, “the contemplated

performance and payment are divided into several parts, or where the work is

continuous and indivisible, [and] the payment for work is in installments as the work

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 29

is completed.” Hubble v. Lone Star Contracting Corp., 883 S.W.2d 379, 381

(Tex.App.–Fort Worth 1994). The Policy is a continuing contract which required

continuous and indivisible payment of workers’ compensation benefits on an ongoing

basis by the Guaranty Associations and reimbursement by Hill Bros. to the Guaranty

Associations of amounts paid within the deductibles.

B. The Statute of Limitations Did Not Accrue on This Continuing Contract

Until it was Fully Performed on April 28, 2009.

The statute of limitations begins to run on a continuing contract on the earlier

of the following: “(1) when the work is completed; (2) when the contract is

terminated in accordance with its terms; or (3) when the contract is anticipatorily

repudiated by one party and this repudiation is adopted by the other party.” Id.

(internal citations omitted). See Dell Computer Corp. v. Rodriguez, 390 F.3d 377, 392

(5th Cir. 2004) (“On a continuing contract, however, the statute of limitations does

not commence to run until the contract is terminated or fully performed.”). A

workers’ compensation policy is not fully performed, and a breach of the deductible

endorsements cannot accrue, if benefits payments are ongoing under the contract. See

Canal, 648 S.E.2d 497, 498 (because the insurer’s payments under the Policy were

ongoing, and demand was made while benefit payments were being made, the

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 30

insurer’s cause of action to recover deductibles could not accrue until demand was

made).

Because the deductible endorsements of the Policy were never terminated by

any party, and because the Guaranty Associations did not adopt any anticipatory

repudiation by Hill Bros., the statute of limitations on the deductible endorsements

of the Policy accrued when the Guaranty Associations fully performed on the

contract.

The Guaranty Associations each fully performed on the contract when they

made their final payment of workers’ compensation benefits under the Policy. These

final payments occurred on April 24, 2007, for CIGA; on April 28, 2009, for

OPCIGA; and on February 19, 2007, for TPCIGA.12 Therefore, CIGA’s cause of

action accrued on August 24, 2007; OPCIGA’s cause of action accrued on April 28,

2009; and TPCIGA’s cause of action accrued on February 19, 2007. Because the

earliest of these accrual dates, February 19, 2007, is less than four years before the

date the Guaranty Associations filed suit on March 31, 2009, their claims for breach

of the continuing contract are not barred by limitations.

12

CIGA’s last payment was issued on April 24, 2007, CR 2977 (see $84 payment);

OPCIGA’s last payment was issued on April 28, 2009, CR 2890 (see $112.40 payment); and

TPCIGA’s last payment was issued on February 19, 2007. CR 2897 (see $3.78 payment).

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 31

The District Court erred in granting summary judgment to Hill Bros. because

the Policy was a continuing contract which required full performance before

limitations could run against the Guaranty Associations. Full performance under the

Policy did not occur until at least February 19, 2007, which was well within the four

year statute of limitations for breach of contract.

Issue 4: Are the Guaranty Associations’ causes of action for

failure to reimburse deductibles barred in whole when

some deductible payments were made within four years

from the date suit was filed?

No. Under no construction can the entirety of the Guaranty Associations’

claims be barred by limitations because each of the Guaranty Associations made

deductible payments on covered claims within four years of the date they filed suit,

or on or after March 31, 2005.

Where a contract requires ongoing payments on specific dates, a separate cause

of action accrues for each missed payment. F.D. Stella Products Co. v. Scott, 875

S.W.2d 462, 465 (Tex. App.–Austin 1994). The Court explained:

The cause of action accrues when each payment is due, and the injured

party has four years to bring suit. Thus, a suit for breach of contract

requiring payment in periodic installments may include all payments due

within the four-year statute of limitations period, even if the initial

breach was beyond the limitations period. Recovery of any payments

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 32

due before the four-year limit is barred, since a suit on each individual

payment more than four years overdue would also be barred.

Id. (Internal citations omitted).

In this case, although the deductible endorsements did not require payments by

Hill Bros. in fixed amounts on specified dates, the rationale of Scott is applicable. See

Spin Doctor Golf, Inc. v. Paymentech, L.P., 296 S.W.3d 354, 363 (Tex.App.–Dallas

2009) (holding that fixed payments are not required for a continuing contract). While

the statute of limitations may bar recovery for payments made four years before suit

was filed, it will not bar recovery for deductible payments made by the Guaranty

Associations within four years of the date the suit was filed. See id. (“We hold that

the parties’ agreement constituted a continuing contract and claims based on breaches

within four years before . . . the date the lawsuit was filed, are not barred by

limitations.”).

Each of the Guaranty Associations made payments under the Policy within four

years of the date they filed suit.13 Because the causes of action on such payments

cannot have accrued until the deductible payments are actually made, the Guaranty

Associations’ claims for reimbursement on these more recent payments are not barred

by the statute of limitations.

13

See supra note 8.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 33

The District Court erred in granting summary judgment to Hill Bros. because

the Guaranty Associations’ right to reimbursement for payments made within four

years of the date suit was filed are not barred by the statute of limitations.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 34

CONCLUSION AND PRAYER

As a matter of law, the statute of limitations did not begin to run against the

Guaranty Associations on April 1, 2002. As of that date, the Guaranty Associations

had no authority to sue Hill Bros., had not yet made the deductible payments for

which they sued Hill Bros., and had not yet made a demand for reimbursement to Hill

Bros. for the deductible payments they had yet to pay. To the extent the Guaranty

Associations are viewed as having delayed in demanding reimbursement, whether

their alleged delay was reasonable is a fact issue precluding summary judgment. In

fact, because the Policy was a continuing contract, the Guaranty Associations’ breach

of contract claims could not have accrued until they fully performed under the Policy,

and the earliest any of the Guaranty Associations fully performed under the Policy

was February 19, 2007. Alternatively, even if earlier payments were barred by the

statute of limitations, the statute of limitations would not bar the Guaranty

Associations’ recovery of deductible payments made within four years of the date the

Guaranty Associations filed suit.

For the reasons stated, the Guaranty Associations, Appellants, ask the Court

to reverse the District Court’s summary judgment and to remand the case for further

proceedings.

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 35

Respectfully submitted,

STONE LOUGHLIN & SWANSON, LLP

P.O. Box 30111

Austin, Texas 78755

(512) 343-1300

(512) 343-1385 Fax

dprice@slsaustin.com

By:

Dan Price (SBN 24041725)

James Loughlin (SBN 00795489)

Attorneys for Appellants

CERTIFICATE OF COMPLIANCE

Relying on the word count of the computer program used to prepare

Appellants’ Brief, the total number of words in this document, excluding sections that

are not to be counted under TEX. R. APP. P. 9.4(i)(1), is 7,498.

Dan Price

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 36

CERTIFICATE OF SERVICE

I hereby certify that on August 7, 2015, a true and correct copy of the foregoing

document served as indicated to the parties listed below.

Via e-Filing/e-Service

Adrian Ciechanowicz

William Johnson

Leila Melhem

DUGGINS WREN MANN & ROMERO, LLP

P.O. Box 1149

Austin, Texas 78767-1149

Telephone: (512) 744-9300

E-mail: aCiechanowicz@dwmrlaw.com

Dan Price

G:\SLS\21744\Appeal\Signature pages.wpd

APPELLANTS’ BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 37

APPENDIX

Document Tab

TEX. INS. CODE. art. 21.28-C.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

CAL. INS. CODE §§ 1063.1(c)(1), 1063.2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

36 OKLA. STAT. ANN. §§ 2004(6), 2004(8), 2007(A)(2). . . . . . . . . . . . . . . . . . . . . 3

The Policy WC1-1945251.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,

225 P.3d 1061, 1068 (Wyo. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

40 PA. CONS. STAT. § 221.23a.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2004 Pa. Legis. Serv. 2004-46 (S.B. No. 815). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Canal Ins. Co. v. Pro Search,

648 S.E.2d 497, 498 (Ga. Ct. App. 2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

AMS Constr. Co., Inc. v. Reliance Ins. Co.,

No. Civ.A. 04-CV-2097, 2004 WL 2600792 (E.D. Penn. Nov. 15, 2004). . . . . . . 9

Final Summary Judgment, dated March 6, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . 10

TAB 1

TEX. INS. CODE. art. 21.28-C

Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...

V.A.T.S. Insurance Code, Art. 21.28-C

VERNON'S TEXAS STATUTES AND CODES ANNOTATED

INSURANCE CODE (1951)

TITLE 1. THE INSURANCE CODE OF 1951

CHAPTER TWENTY-ONE—GENERAL PROVISIONS

SUBCHAPTER D. CONSOLIDATION, LIQUIDATION, REHABILITATION, REORGANIZATION OR

CONSERVATION OF INSURERS

Art. 21.28-C. Property and Casualty Insurance Guaranty Act

Short title

Sec. 1. This article shall be known as the Texas Property and Casualty Insurance Guaranty Act.

Purpose

Sec. 2. The purpose of this Act is to:

(1) provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment;

(2) avoid financial loss to claimants or policyholders because of the impairment of an insurer;

(3) assist in the detection and prevention of insurer insolvencies; and

(4) provide an association to assess the cost of that protection among insurers.

Scope

Sec. 3. (a) This Act applies to all kinds of direct insurance, and except as provided in Section 12 of this Act, is not applicable

to the following:

(1) life, annuity, health, or disability insurance;

(2) mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment risks;

(3) fidelity or surety bonds, or any other bonding obligations;

(4) credit insurance, vendors' single-interest insurance, collateral protection insurance, or any similar insurance protecting the

interests of a creditor arising out of a creditor-debtor transaction;

(5) insurance of warranties or service contracts;

(6) title insurance;

(7) ocean marine insurance;

(8) any transaction or combination of transactions between a person, including an affiliate of such a person, and an insurer,

including an affiliate of such an insurer, that involves the transfer of investment or credit risk unaccompanied by the transfer of

insurance risk; or

(9) any insurance provided by or guaranteed by government.

(b) This Act applies to insurance written through the Texas Mutual Insurance Company only as provided by this subsection. The

application of this article to the Texas Mutual Insurance Company is on a prospective basis on and after January 1, 2000. That

company is only liable for assessments for a claim with a date of injury that occurs on or after January 1, 2000. The association,

with respect to an insolvency of the company, is only liable for a claim with a date of injury that occurs on or after January 1,

2000.

Construction

Sec. 4. This Act shall be liberally construed to effect the purposes under Section 2 of this Act, which will constitute an aid and

guide to interpretation.

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Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...

Definitions

Sec. 5. In this Act:

(1) “Account” means any one of the three accounts created under Section 6 of this Act.

(2) “Affiliate” means a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is

under common control with an impaired insurer on December 31 of the year next preceding the date the insurer becomes an

impaired insurer.

(3) “Association” means the Texas Property and Casualty Insurance Guaranty Association.

(4) “Board” means the board of directors of the association.

(5) “Claimant” means any insured making a first-party claim or any person instituting a liability claim. A person who is an

affiliate of the impaired insurer may not be a claimant.

(6) “Commissioner” means the commissioner of insurance.

(7) “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 a

showing that control does not exist in fact.

(8) “Covered claim” means an unpaid claim of an insured or third-party liability claimant that arises out of and is within the

coverage and not in excess of the applicable limits of an insurance policy to which this Act applies, issued or assumed (whereby

an assumption certificate is issued to the insured) by an insurer licensed to do business in this state, if that insurer becomes an

impaired insurer and the third-party claimant or liability claimant or insured is a resident of this state at the time of the insured

event, or the claim is a first-party claim for damage to property that is permanently located in this state. “Covered claim” shall

also include unearned premiums, but in no event shall a covered claim for unearned premiums exceed $25,000. Individual covered

claims (including any and all derivative claims by more than one person which arise from the same occurrence, which shall be

considered collectively as a single claim under this Act) shall be limited to $300,000, except that the association shall pay the full

amount of any covered claim arising out of a workers' compensation claim made under a workers' compensation policy. “Covered

claim” shall not include any amount sought as a return of premium under a retrospective rating plan or any amount due any

reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries, reinsurance recoveries, contribution,

indemnification, or otherwise, and the insured of an impaired insurer is not liable, and the insurer is not entitled to sue or continue

a suit against that insured, for any subrogation recovery, reinsurance recovery, contribution, or indemnity asserted by a reinsurer,

insurer, insurance pool, or underwriting association to the extent of the applicable liability limits of the policy written and issued

to the insured by the insolvent insurer. “Covered claim” shall not include supplementary payment obligations, including adjustment

fees and expenses, attorney's fees and expenses, court costs, interest and penalties, and interest and bond premiums incurred prior

to the determination that an insurer is an impaired insurer under this Act. “Covered claim” shall not include any prejudgment or

postjudgment interest that accrues subsequent to the determination that an insurer is an impaired insurer under this Act. “Covered

claim” shall not include any claim for recovery of punitive, exemplary, extracontractual, or bad-faith damages, whether sought

as a recovery against the insured, insurer, guaranty association, receiver, special deputy receiver, or commissioner, awarded in

a court judgment against an insured or insurer. “Covered claim” shall not include, and the association shall not have any liability

to an insured or third-party liability claimant, for its failure to settle a liability claim within the limits of a covered claim under

this Act. With respect to a covered claim for unearned premiums, both persons who were residents of this state at the time the

policy was issued and persons who are residents of this state at the time the company is found to be an impaired insurer shall be

considered to have covered claims under this Act. If the impaired insurer has insufficient assets to pay the expenses of

administering the receivership or conservatorship estate, that portion of the expenses of administration incurred in the processing

and payment of claims against the estate shall also be a covered claim under this Act.

(9) “Impaired insurer” means:

(A) a member insurer that is placed in temporary or permanent receivership under an order of a court of competent jurisdiction,

including the courts of any other state, based on a finding of insolvency and that has been designated an impaired insurer by the

commissioner; or

(B) a member insurer placed in conservatorship after it has been determined by the commissioner to be insolvent and that has

been designated an impaired insurer by the commissioner.

(10) “Member insurer” means any insurer who:

(A) writes any kind of insurance to which this Act applies under Section 3 of this Act, including the exchange of reciprocal or

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Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...

inter-insurance contracts; and

(B) is licensed to transact insurance in this state, including any stock, mutual, Lloyds insurer, reciprocal or inter-insurance

exchange, or county mutual insurance company.

(11) “Net direct written premiums”, when assessing other than the workers' compensation line of business, means direct premiums

written in this state on insurance policies to which this Act applies, less return premiums on those policies and dividends paid or

credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers.

When assessing the workers' compensation line of business, the term “net direct written premiums” includes the modified annual

premium prior to the application of any deductible premium credit, less return premiums on those policies and dividends paid or

credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers.

(12) “Person” means any individual, corporation, partnership, association, or voluntary organization.

Association

Sec. 6. The Texas Property and Casualty Insurance Guaranty Association is a nonprofit, unincorporated legal entity composed

of all member insurers, who must be 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 approved under Section 9 of this Act and shall exercise its

powers through the board of directors. For purposes of administration and assessment, the association is divided into the workers'

compensation insurance account, the automobile insurance account, and the account for all other lines of insurance to which this

Act applies.

Board of directors

Sec. 7. (a) The board of directors of the association is composed of nine persons who serve terms as established in the plan of

operation. Five members shall be selected by member insurers, subject to the approval of the commissioner. To be eligible to serve

as an insurance industry board member, a person must be a full-time employee of a member insurer. The remaining members shall

be representatives of the general public appointed by 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.

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

(c) Members of the board of directors may be reimbursed from the assets of the association for expenses incurred by them as

members of the board of directors.

(d) A public representative may not be:

(1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other

business entity regulated by the Texas Department of Insurance;

(2) a person required to register with the Texas Ethics Commission under Chapter 305, Government Code, in connection with

the person's representation of clients in the field of insurance; or

(3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.

(e) Each member of the board of directors shall file a financial statement with the secretary of state in accordance with Sections

3 and 4, Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-9b, Vernon's Texas Civil Statutes).

(f) A director of the association or any member company or other entity represented by the director may not receive any money

or valuable thing directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit for

negotiating, procuring, participating, recommending, or aiding in a transaction, reinsurance agreement, merger, purchase, sale,

or exchange of assets, policies of insurance, or property made by the association or the supervisor, conservator, or receiver on

behalf of an impaired insurer. The director, company, or entity may not be pecuniarily or contractually interested, as principal,

co-principal, agent, or beneficiary, directly, indirectly, or through any substantial interest in any other corporation, firm, or

business unit, in the transaction, reinsurance agreement, merger, purchase, sale, or exchange.

Powers and duties of association

Sec. 8. (a) The association shall pay covered claims that exist before the designation of impairment or that arise within 30 days

after the date of the designation of impairment, before the policy expiration date if the policy expiration date is within 30 days

after the date of the designation of impairment, or before the insured replaces the policy or causes its cancellation if the insured

does so within 30 days after the date of the designation. The obligation is satisfied by paying to the claimant the full amount of

a covered claim for benefits.

(b) The association shall undertake to discharge the policy obligations of the impaired insurer, including the duty to defend

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Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,...

insureds under a liability policy, to the extent that the policy obligations are covered claims under this Act. In performing its

statutory obligations, the association may also enforce any duty imposed on the insured party or beneficiary under the terms of

any policy of insurance within the scope of this Act. In performing its statutory obligations under this Act, the association shall

not be considered to be in the business of insurance, shall not be considered to have assumed or succeeded to any liabilities of

the impaired insurer, and shall not be considered to otherwise stand in the shoes of the impaired insurer for any purpose, including

the issue of whether the association is amenable to the personal jurisdiction of the courts of any other state.

(c) The association shall assess insurers amounts necessary to pay the obligations of the association under Subsection (a) of this

section after an insolvency, the expenses of handling covered claims subsequent to an insolvency, and other expenses authorized

by this Act. 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 bears to the net direct written premiums of all member insurers for the

calendar year preceding the assessment. Each member insurer shall be notified of the assessment not later than the 30th day before

the date on which the assessment is due. A member insurer may not be assessed in any year an amount greater than two percent

of that member insurer's net direct written premiums for the calendar year preceding the assessment. If the maximum assessment,

with the other assets of the association, does not provide in any one year an amount sufficient to make all necessary payments,

the funds available shall be prorated, and the unpaid portion shall be paid as soon thereafter as funds become available. The

association shall pay claims in any order it considers reasonable, including the payment of claims as they are received from the

claimants or in groups or categories of claims. The association may defer, in whole or in part, the assessment of any member

insurer if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than

the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to

transact insurance; provided, however, that during the period of deferment, dividends may not be paid to shareholders or

policyholders. Deferred assessments shall be paid when the payment will not reduce capital or surplus below required minimums.

The payments shall be refunded to those companies receiving larger assessments by virtue of the deferment, or at the election of

such a company, credited against future assessments.

(d) The association shall investigate and adjust, compromise, settle, and pay covered claims to the extent of the association's

obligation and deny all other claims. The association may review settlements, releases, and judgments to which the impaired

insurer or its insureds were parties to determine the extent to which those settlements, releases, and judgments may be properly

contested. Any judgment taken by default or consent against an insured or the impaired insurer, and any settlement, release, or

judgment entered into by the insured or the impaired insurer, is not binding on the association, and may not be considered as

evidence of liability or of damages in connection with any claim brought against the association or any other party under this Act.

Notwithstanding any other provision of this Act, a covered claim shall not include any claim filed with the guaranty association

after the later of the final date for filing claims against the liquidator or receiver of an insolvent insurer or eighteen months after

the order of liquidation.

(e) The association shall give notice as the commissioner directs under Section 10(c) of this Act.

(f) The association shall 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 a designation may

be declined by a member insurer.

(g) The association shall 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 Act.

(h) The association may:

(1) employ or retain persons as necessary to handle claims and perform other duties of the association;

(2) borrow funds necessary to implement this Act in accordance with the plan of operation;

(3) sue or be sued;

(4) negotiate and become a party to contracts as necessary to implement this Act, including lump-sum or structured compromise

and settlement agreements with claimants who have claims for medical or indemnity benefits for a period of three years or more

other than a settlement or lump-sum payment in violation of the Texas Workers' Compensation Act (Article 8308-1.01 et seq.,

Vernon's Texas Civil Statutes);

(5) perform other acts as necessary or proper to implement this Act; or

(6) refund to the member insurers in proportion to the contribution of each member insurer to the association that amount by

which the assets of the association exceed the liabilities, if at the end of any calendar year the board of directors finds that the

assets of the association exceed the liabilities of the association as estimated by the board of directors for the coming year.

(i) Repealed by Acts 1993, 73rd Leg., ch. 685, § 9.10, eff. Sept. 1, 1993.

(j) The board of directors may deposit all money collected by the association into the Texas Treasury Safekeeping Trust

Company in accordance with procedures established by the comptroller. The funds deposited shall be accounted for separately

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from all other funds by the comptroller to the association.

(k)(1) Notwithstanding Chapter 271, Acts of the 60th Legislature, Regular Session, 1967 (Article 6252-17, Vernon's Texas Civil

Statutes), [FN1] the board may hold an open meeting by telephone conference call if immediate action is required and the

convening at one location of a quorum of the board is not reasonable or practical.

(2) The meeting is subject to the notice requirements applicable to other meetings.

(3) The notice of the meeting must specify as the location of the meeting the location where meetings of the board are usually

held.

(4) Each part of the meeting that is required to be open to the public shall be audible to the public at the location specified in the

notice of the meeting as the location of the meeting and shall be tape recorded. The tape recording shall be made available to the

public.

Plan of operation

Sec. 9. (a) The association shall submit to the commissioner a plan of operation and any amendments necessary or suitable to

ensure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments take effect

on approval in writing by the commissioner.

(b) If the association fails to submit suitable amendments to the plan, the commissioner, after notice and hearing, shall adopt

reasonable rules as necessary or advisable to implement this Act. Those rules shall continue in force until modified by the

commissioner or superseded by a plan submitted by the association and approved by the commissioner.

(c) All member insurers shall comply with the plan of operation.

(d) The plan of operation must:

(1) establish the procedures under which the powers and duties of the association are performed;

(2) establish procedures for handling assets of the association;

(3) establish the amount and method of reimbursing members of the board of directors;

(4) provide for the establishment of a claims filing procedure that includes, but is not limited to, notice by the association to

claimants, procedures for filing claims seeking recovery from the association, and a procedure for appealing the denial of claims

by the association; and

(5) establish acceptable forms of proof of covered claims.

(e) A list of claims shall be submitted periodically to the association or similar organization in another state by the receiver.

(f) The plan of operation must:

(1) establish regular places and times for meetings of the board of directors;

(2) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of

directors;

(3) provide that any member insurer aggrieved by any final action or decision of the association may appeal to the commissioner

not later than the 30th day after the date of the action or decision;

(4) establish the procedures under which selections for the board of directors are submitted to the commissioner; and

(5) contain additional provisions as necessary or proper for the execution of the powers and duties of the association.

(g) The plan of operation may provide that any or all powers and duties of the association, except those under Section 8(c) and

8(h)(2) of this Act, are delegated by contract to a corporation, association, or other organization that performs or will perform

functions similar to those of the association or its equivalent in two or more states. The corporation, association, or organization

shall be reimbursed as a servicing facility would be reimbursed and shall be paid for the performance of any other functions of

the association. A delegation under this subsection takes effect only with the approval of both the board of directors and the

commissioner and may be made only to a corporation, association, or organization that extends protection not substantially less

favorable and effective than that provided by this Act. A contract entered into under this subsection is subject to the performance

standards imposed under Section 2(a), Article 21.28, of this code.

Duties and powers of commissioner

Sec. 10. (a) The commissioner shall notify the association of the existence of an impaired insurer not later than three days after

the commissioner gives notice of the designation of impairment. The association is entitled to a copy of any complaint seeking

an order of receivership with a finding of insolvency against a member company at the same time that the complaint is filed with

a court of competent jurisdiction.

(b) On request of the board of directors, the commissioner shall provide the association with a statement of the net direct written

premiums of each member insurer.

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(c) The commissioner may require that the association notify the insureds of the impaired insurer and any other interested parties

of the designation of impairment and of their rights under this Act. The notification shall be by mail at the last known address,

if available, but if sufficient information for notification by mail is not available, notice by publication in a newspaper of general

circulation is sufficient.

(d) The commissioner shall suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this

state of any member insurer that fails to pay an assessment when due or otherwise fails to comply with the plan of operation. As

an alternative, the commissioner may assess a fine on any member insurer that fails to pay an assessment when due. The fine may

not exceed the lesser of five percent of the unpaid assessment per month or $100 per month.

(e) The commissioner may revoke the designation of any servicing facility if the commissioner finds that claims are being handled

unsatisfactorily.

(f) Any final action or order of the commissioner under this Act is subject to judicial review by a court of competent jurisdiction.

(g) Venue in a suit against the association or commissioner relating to any action or ruling of the association or commissioner

made under this Act is in Travis County. The association or commissioner is not required to give an appeal bond in an appeal of

a cause of action arising under this Act.

Effect of paid claims

Sec. 11. (a) A person recovering under this Act is considered to have assigned to the association the person's right under the

policy, and the person's rights to recover for the occurrence made the basis of the claim under this Act under any policy of

insurance issued by an unimpaired insurer to the extent of the person's recovery from the association. The association may pursue

any such claims to which it is subrogated under this provision in its own name or in the name of the person recovering under this

Act. Each insured or claimant seeking the protection of this Act shall cooperate with the association to the same extent as that

person would have been required to cooperate with the impaired insurer. The association does not have a cause of action against

the insured of the impaired insurer for any sums it has paid out except those causes of action the impaired insurer would have had

if the sums had been paid by the impaired insurer and except as provided in Subsection (b) of this section. In the case of an

impaired insurer operating on a plan with assessment liability, payments of claims of the association do not reduce the liability

of the insureds to the receiver or statutory successor for unpaid assessments.

(b) The association is entitled to recover from the following persons the amount of any covered claim paid on behalf of that

person under this Act:

(1) any insured, other than an insured who is exempt from federal income tax under Section 501(a) of the Internal Revenue Code

of 1986 (26 U.S.C. Section 501(a)) by being described by Section 501(c)(3) of that code, whose net worth on December 31 of

the year next preceding the date the insurer becomes an impaired insurer exceeds $50 million and whose liability obligations to

other persons under a policy or contract of insurance written, issued, and placed in force after January 1, 1992, are satisfied in

whole or in part by payments made under this Act; and

(2) any person who is an affiliate of the impaired insurer and whose liability obligations to other persons are satisfied in whole

or in part by payments made under this Act.

(c) The receiver or statutory successor of an impaired insurer is bound by settlements of covered claims by the association or

a similar organization in another state. The court having jurisdiction shall grant those claims priority equal to that which the

claimant would have been entitled to in the absence of this Act against the assets of the impaired insurer. The expenses of the

association or similar organization in handling claims shall be accorded the same priority as the receiver's expenses.

(d) The association shall file periodically with the receiver of the impaired insurer statements of the covered claims paid by the

association and estimates of anticipated claims on the association that shall preserve the rights of the association against the assets

of the impaired insurer.

Nonduplication of recovery

Sec. 12. (a) A person who has a claim against an insurer under any provision in an insurance policy other than a policy of an

impaired insurer that is also a covered claim shall exhaust first the person's rights under the policy, including any claim for

indemnity or medical benefits under any workers' compensation, health, disability, uninsured motorist, personal injury protection,

medical payment, liability, or other policy, and the right to defense under the policy. The association shall have a credit or setoff

against any amount of benefits which would otherwise be payable by the association to the claimant under this Act, in the amount

of the claimant's recovery under any policy issued by an unimpaired insurer. Subject to the provisions of Subsection (a-1) below,

the association's credit or setoff under this section shall be deducted from damages incurred by the claimant, and the remaining

sum shall be the maximum amount payable by the association, except that the association's liability shall not exceed $100,000

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or the limits of the policy under which the claim is made, whichever is less.

(a-1) Notwithstanding Subsection (a) of this section, if a claimant is seeking recovery of policy benefits that, but for the

insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or

any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by

the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery

under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency

of the impaired insurer. Subject to Section 5(8) of this Act, a claimant's recovery under this Act may not result in a recovery to

the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.

(b) A person who has 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, the person shall seek recovery first from the association of the location of the property, and

if it is a workers' compensation claim the person shall seek recovery first from the association of the residence of the claimant.

The association shall have a credit or setoff against any amount of benefits under this Act, in the amount of the claimant's recovery

from the guaranty association or equivalent. Subject to the provisions of Subsection (b-1) below, the association's credit or setoff

under this Section shall be deducted from the damages incurred by the claimant, and the remaining sum shall be the maximum

amount payable by the association, except that the association's liability shall not exceed $100,000.

(b-1) Notwithstanding Subsection (b) of this section, if a claimant is seeking recovery of policy benefits that, but for the

insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or

any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by

the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery

under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency

of the impaired insurer. Subject to Section 5(8) of this Act, a claimant's recovery under this Act shall not result in a recovery to

the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.

Financial condition of member insurers; prevention of insolvencies

Sec. 13. (a) The association shall have access to the books and records of a member insurer in receivership, in order to make a

determination of the extent of the impact on the association in the event such member becomes impaired. The association shall

have the authority to perform or cause to be performed an actuarial and operational analysis of the member insurer and prepare

a report on matters relating to the impact or potential impact on the association in the event of impairment. Such reports shall not

be public documents.

(b) At the conclusion of any domestic insurer insolvency in which the association was obligated to pay covered claims, the board

of directors may prepare a report on the history and causes of the insolvency, based on the information available to the association,

and may submit the report to the commissioner.

(c) There shall be no liability on the part of, and no cause of action of any nature shall arise against the association or its agents

or employees, the board of directors, member insurers, or the commissioner or the commissioner's authorized representative for

any statement made in good faith by them in any report or recommendation made under this section.

Examination of the association

Sec. 14. Not later than April 30 of each year, the association shall submit an audited financial statement to the state auditor for

the preceding calendar year in a form approved by the state auditor's office.

Tax exemption

Sec. 15. The association is exempt from payment of all fees and all taxes levied by this state or any of its subdivisions except

taxes levied on real or personal property.

Immunity; attorney general representation

Sec. 16. (a) There is no liability on the part of, and no cause of action of any nature arises against, any member insurer, the

association or its agents or employees, the board of directors, receiver, special deputy receiver or its agents or employees, or the

commissioner or the commissioner's representatives for any good faith action or failure to act in the performance of powers and

duties under this Act.

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(b) The attorney general shall defend any action to which Subsection (a) applies that is brought against a member insurer or its

agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy

receiver to its agents or employees, or the commissioner or the commissioner's representatives. This subsection continues to apply

to an action instituted after the defendant's service with the guaranty association, commissioner, or department has terminated.

This subsection does not require the attorney general to defend any person or entity with respect to an issue other than the

applicability or effect of the immunity created by Subsection (a). The attorney general is not required to defend any member

insurer of the association or its agents or employees, the association or its agents or employees, members of the association's board

of directors, a special deputy receiver or its agents or employees with respect to any actions filed regarding the disposition of a

claim filed with the guaranty association under this Act or to an issue other than the applicability or effect of the immunity created

by Subsection (a). The association may contract with the attorney general under the Interagency Cooperation Act (Article

4413(32), Vernon's Texas Civil Statutes) to provide legal services not covered under this subsection.

Stay of proceedings

Sec. 17. All proceedings in which an impaired insurer is a party or is obligated to defend a party in any court in this state, except

proceedings directly related to the receivership or instituted by the receiver, shall be stayed for six months and any additional time

thereafter as may be determined by the court from the date of the designation of impairment or an ancillary proceeding is instituted

in the state, whichever is later, to permit proper defense by the receiver or the association of all pending causes of action. A

deadline imposed under the Texas Rules of Civil Procedure or the Texas Rules of Appellate Procedure is tolled during the stay.

The court in which the delinquency proceeding is pending has exclusive jurisdiction regarding the application, enforcement, and

extension of the stay. As to any covered claims arising from a judgment under any decision, verdict, or finding based on the default

of the impaired insurer or its failure to defend an insured, the association either on its own behalf or on behalf of the insured shall

be entitled, upon application, to have the judgment, order, decision, verdict, or finding set aside by the same court or administrator

that made the judgment, order, decision, verdict, or finding and shall be permitted to defend the claim on the merits. The receiver

or statutory successor of an impaired insurer covered by this Act shall permit access by the board or its authorized representative

to records of the impaired insurer as are necessary for the board in carrying out its functions under this Act with regard to covered

claims. In addition, the receiver or statutory successor shall provide the board or its representative with copies of the records on

request of the board and at the expense of the board.

Assessments

Sec. 18. (a) If the commissioner determines that an insurer has become an impaired insurer, the association shall promptly

estimate the amount of additional funds, by lines of business, needed to supplement the assets of the impaired insurer immediately

available to pay covered claims. The board shall make additional funds available as the actual need arises for each impaired

insurer.

(b) If the board of directors determines that additional funds are needed in any of the three accounts, it shall make assessments

as necessary to produce the necessary funds. The association, in determining the proportionate amount to be paid by individual

insurers under an assessment, shall take into consideration the lines of business written by the impaired insurer and shall assess

individual insurers in proportion to the ratio that the total net direct written premium collected in this state by the insurer for those

lines of business bears to the total net direct written premium collected by all insurers, other than impaired insurers, in this state

for those lines of business. The association shall determine the total net direct written premium of an individual insurer and for

all insurers in the state from the insurers' annual statements for the year preceding assessment. Except as otherwise provided by

this subsection, assessments under this subsection during a calendar year may be made up to, but not in excess of, two percent

of each insurer's net direct written premium for the preceding calendar year in the lines of business for which the assessments are

being made. In the event of a natural disaster or other catastrophic event, the association may apply to the governor, in the manner

prescribed by the plan of operation, for authority to assess each member insurer that writes insurance coverage, other than motor

vehicle coverage or workers' compensation coverage, an additional amount not to exceed two percent of the insurer's net direct

written premiums for the preceding calendar year. If the maximum assessment in any calendar year does not provide an amount

sufficient for payment of covered claims of impaired insurers, assessments may be made in the next and successive calendar years.

(c) It shall be the duty of each insurer to pay the amount of an assessment under Subsection (b) of this section to the association

not later than the 30th day after the association gives notice of the assessment.

(d) Assessments may be collected on behalf of the association by the commissioner through suits brought for that purpose. Venue

for those suits is in Travis County. Either party to the action may appeal to the appellate court having jurisdiction over the cause,

the appeal shall be at once returnable to the appellate court having jurisdiction over the cause, and the action so appealed shall

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have precedence in the appellate court over all causes of a different character pending before the court. The commissioner is not

required to give an appeal bond in any cause arising under this subsection.

(e) An insurer designated as an impaired insurer by the commissioner is exempt from assessment from and after the date of the

designation and until the commissioner determines that the insurer is no longer an impaired insurer.

(f) Funds advanced by the association under this Act shall not become assets of the impaired insurer but are considered a special

fund loaned to the impaired insurer for payment of covered claims. That loan is repayable to the extent available from the funds

of the insurer.

(g) Income from the investment of any of the funds of the association may be transferred to the administrative account authorized

under this Act. The funds in the account may be used by the association for the purpose of meeting administrative costs and other

general expenses of the association. On notification by the association of the amount of any additional funds needed for the

administrative account, the association shall assess member insurers to obtain the needed funds in the manner set out in this

section. The commissioner shall consider the net direct written premium collected in this state for all lines of business covered

by this Act. An assessment for administrative expenses incurred by a supervisor or conservator appointed by the commissioner

or a receiver appointed by a court of competent jurisdiction for a nonmember of the association or unauthorized insurer operating

in this state may not exceed $1,000,000 each calendar year.

(h) Expired.

Purpose of assessment

Sec. 19. (a) The amounts provided under assessments made under this Act are in addition to the marshaling of assets by the

receiver under Article 21.28 of this code for the purpose of making payments on behalf of an impaired insurer.

(b) This section does not require the receiver to exhaust the assets of the impaired insurer before an assessment is made or before

funds derived from an assessment may be used to pay covered claims.

Accounting for and repayment of assessments

Sec. 20. (a) On receipt from an insurer of payment of an assessment or partial assessment required by the association under

Section 18(b) of this Act, the association shall provide the insurer with a participation receipt, which shall create a liability against

the account for the line or lines of business for which the assessment was made.

(b) The account from which an advance is made to an impaired insurer for the payment of covered claims shall be regarded as

a general creditor of the impaired insurer for the amount of funds so advanced; provided, however, that with reference to the

remaining balance of any advances not expended in payment of covered claims, the claim of the account has preference over other

general creditors. The association of any impaired insurer shall adopt accounting procedures reflecting the expenditure and use

of all funds and shall make a final report of the expenditure and use of the funds to the commissioner, which final report shall set

forth the remaining balance, if any, from the moneys advanced. The association shall also make any interim reports concerning

such accounting as may be required by the commissioner or requested by the conservator. On completion of the final report, the

association shall, as soon thereafter as is practicable, refund by line of business the remaining balance of those advances to the

accounts maintained by the association.

(c) If the association at any time determines that there exist moneys in the account for any line of business in excess of those

reasonably necessary for efficient future operation under the terms of this Act, it shall cause those excess moneys to be returned

pro rata to the holders of any participation receipts on which there is a balance outstanding after deducting any credits taken

against premium taxes as authorized in Section 21 of this Act, which receipts were issued for an assessment on the same line of

business as that for which the excess moneys are found to exist. If after such a distribution the association finds that an excess

amount still exists in the fund, or if there are no such participation receipts on which there is an outstanding balance, it shall cause

the excess amount to be deposited with the comptroller to the credit of the general revenue fund.

Recognition of assessments in premium tax offset; assignment of credit

Sec. 21. (a) One hundred percent of any assessment paid by an insurer under this Act shall be allowed to that insurer as a credit

against its premium tax under Article 4.10 of this code. The tax credit referred to in this section shall be allowed at a rate of 10

percent per year for 10 successive years following the date of assessment and, at the option of the insurer, may be taken over an

additional number of years. The balance of any tax credit not claimed in a particular year may be reflected in the books and records

of the insurer as an admitted asset of the insurer for all purposes, including exhibition in annual statements under Article 6.12 of

this code.

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(b) Available credit against premium tax allowed under Subsection (a) of this section may be transferred or assigned among or

between insurers if:

(1) a merger, acquisition, or total assumption of reinsurance among or between the insurers occurs; or

(2) the commissioner by order approves the transfer or assignment.

Release from receivership

Sec. 22. An impaired insurer placed in receivership for which advances have been made under this Act may not be authorized,

on release from receivership, to issue new or renewal insurance policies until the impaired insurer has repaid in full to the

association the funds advanced by it. However, the commissioner may, on application of the association and after hearing, permit

the issuance of new policies in accordance with a plan of operations by the released insurer for repayment of advances. The

commissioner, in approving the plan, may place restrictions on the issuance of new or renewal policies as the commissioner

considers necessary to the implementation of the plan.

Rules and regulations

Sec. 23. The State Board of Insurance is authorized and directed to issue such reasonable rules and regulations as may be

necessary to carry out the various purposes and provisions of this article, and in augmentation thereof.

Sec. 24. Blank.

Controlling law

Sec. 25. (a) Except as provided in Subsection (b) of this section, if a conflict exists between this Act and any other statutory

provision relating to the association, this Act shall control.

(b) This section does not apply to a conflict between this Act and:

(1) the Texas Workers' Compensation Act (Article 8308-1.01, et seq., Vernon's Texas Civil Statutes);

(2) Subchapter D, Chapter 5, of this code; [FN2] or

(3) Article 5.76-2, 5.76-3, 5.76-4, or 5.76-5 of this code.

Coverage for Workers' Compensation Insurance Policies Issued by Texas Workers' Compensation Insurance Facility

Sec. 26. (a) Notwithstanding any other provision of this article, this article applies to each policy of insurance issued under

Article 5.76 of this code or Article 5.76-2 of this code, as that article existed before its repeal.

(b) Notwithstanding any other provision of this article, after the conversion of the Texas workers' compensation insurance facility

to a stock insurance company, that converted facility shall be considered an impaired insurer for purposes of this article if any of

the actions described by Section 5(9)(A) or (B) of this article occur to the converted facility.

(c) A claim under such an insurance policy is a covered claim for purposes of this article if the claim satisfies the definition under

Section 5(8) of this article, whether or not the converted facility:

(1) issued or assumed the policy; or

(2) was licensed to do business in this state at the time:

(A) the policy was written; or

(B) the converted facility became an impaired insurer.

(d) If a conflict exists between this section and any other statute relating to the Texas workers' compensation insurance facility

or the Texas Property and Casualty Insurance Guaranty Association, this section controls.

Immunity

Sec. 27. There is no liability on the part of, and a cause of action does not arise against, any member insurer of the association,

the association, an agent or employee of the association, a member of the board of directors of the association, or the commissioner

or the commissioner's representative for any act or omission in the performance of any activity related to the negotiations relating

to the privatization of the Texas workers' compensation insurance facility. This section applies to each activity undertaken by such

a person or entity, regardless of the date of the act or omission.

CREDIT(S)

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TAB 2

CAL. INS. CODE §§ 1063.1(c)(1), 1063.2(b)

Page 1

West's Ann.Cal.Ins.Code § 1063

WEST'S ANNOTATED CALIFORNIA CODES

INSURANCE CODE

DIVISION 1. GENERAL RULES GOVERNING INSURANCE

PART 2. THE BUSINESS OF INSURANCE

CHAPTER 1. GENERAL REGULATIONS

ARTICLE 14.2. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION

Copr. (C) West Group 2002. All rights reserved.

§ 1063. Establishment of the California Insurance Guarantee Association; powers and duties; audit and exam-

ination

(a) Within 60 days after the original effective date of this article, all insurers, including reciprocal insurers, ad-

mitted to transact insurance in this state of any or all of the following classes only in accordance with the provi-

sions 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 Sec-

tion 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 oth-

er 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 indem-

nity coverage, or reinsurance as defined in Section 620, or fraternal fire insurance written by associations organ-

ized 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 such insurer,

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 estab-

lished as provided in this article. It shall be the purpose of the association to provide for each member insurer in-

solvency 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 there-

after 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 such 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 in-

surers covered by this article. In case of a vacancy for any reason on the board, the commissioner shall appoint a

© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 2

member insurer to fill the unexpired term.

(c) The association shall adopt a plan of operations, and any amendments thereto, not inconsistent with the pro-

visions of this article, necessary to assure the fair, reasonable, and equitable manner of administering the associ-

ation, 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 commis-

sioner. 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 ori-

ginal 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 ne-

cessary or advisable to effectuate the provisions of this chapter. These rules shall continue in force until modi-

fied by the commissioner after hearing or superseded by a plan of operation, adopted by the association and ap-

proved by the commissioner.

(e) In accordance with its plan of operation, the association may designate one or more of its members as a ser-

vicing facility, but a member may decline this designation. Each servicing facility shall be reimbursed by the as-

sociation 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 ser-

vicing 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 art-

icle.

(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 ef-

fectuate 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, ad-

justed, 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 imple-

ment 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 require-

ments of Article 4 (commencing with Section 730) of Chapter 1 of Part 2 of Division 2, which sets forth the ex-

amination 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.

CREDIT(S)

© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 1

West's Ann.Cal.Ins.Code § 1063.1

WEST'S ANNOTATED CALIFORNIA CODES

INSURANCE CODE

DIVISION 1. GENERAL RULES GOVERNING INSURANCE

PART 2. THE BUSINESS OF INSURANCE

CHAPTER 1. GENERAL REGULATIONS

ARTICLE 14.2. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION

Copr. (C) West Group 2002. All rights reserved.

§ 1063.1. Definitions

As used in this article:

(a) “Member insurer” means an insurer required to be a member of the association in accordance with subdivi-

sion (a) of Section 1063, except and to the extent that the insurer is participating in an insolvency program adop-

ted by the United States government.

(b) “Insolvent insurer” means a member insurer against which an order of liquidation or receivership with a

finding of insolvency has been entered by a court of competent jurisdiction.

(c)(1) “Covered claims” means the obligations of an insolvent insurer, including the obligation for unearned

premiums, (i) imposed by law and within the coverage of an insurance policy of the insolvent insurer; (ii) which

were unpaid by the insolvent insurer; (iii) 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;

(iv) 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; (v) for which the assets of the insolvent insurer are insufficient

to discharge in full; (vi) in the case of a policy of workers' compensation insurance, to provide workers' com-

pensation benefits under the workers' compensation law of this state; and (vii) in the case of other classes of in-

surance 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 include 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” un-

der this paragraph shall be required to satisfy the requirements of subparagraphs (i) to (vii), inclusive, of para-

graph (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:

(i) Life, annuity, health, or disability insurance.

(ii) Mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment

risks.

(iii) Fidelity or surety insurance including fidelity or surety bonds, or any other bonding obligations.

(iv) Credit insurance.

© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 2

(v) Title insurance.

(vi) Ocean marine insurance or ocean marine coverage under any insurance policy including claims arising from

the following: the Jones Act (46 U.S.C.A. Sec. 688), the Longshore and Harbor Workers' Compensation Act (33

U.S.C.A. Sec. 901 et seq.), or any other similar federal statutory enactment, or any endorsement or policy af-

fording protection and indemnity coverage.

(vii) 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 association as provided in this chapter, 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 in-

solvent 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 re-

maining, 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.

(9) “Covered claims” does not include (i) 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 nor (ii) any claim by any person other than the origin-

al 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 ex-

ecutor, 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 con-

tract 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.

(d) “Admitted to transact insurance in this state” means an insurer possessing a valid certificate of authority is-

sued by the department.

© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 3

(e) “Affiliate” means a person who directly or indirectly, through one or more intermediaries, controls, is con-

trolled 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 man-

agement 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 of-

ficial 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 in-

surance, 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 ex-

pense 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 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.

CREDIT(S)

1993 Main Volume

(Added by Stats.1978, c. 507, p. 1651, § 2, eff. Aug. 21, 1978. Amended by Stats.1979, c. 384, p. 1447, § 3;

Stats.1981, c. 1154, p. 4612, § 1; Stats.1983, c. 308, § 1; Stats.1984, c. 564, § 1; Stats.1987, c. 833, § 1;

Stats.1989, c. 1258, § 1; Stats.1991, c. 537 (S.B.1104), § 1; Stats.1992, c. 227 (S.B.1581), § 1.)

2002 Electronic Pocket Part Update

(Amended by Stats.1994, c. 6 (A.B.1667), § 2, eff. Feb. 10, 1994; Stats.1997, c. 372 (A.B.1148), § 1;

Stats.1997, c. 497 (S.B.1277), § 2.5; Stats.1999, c. 721 (A.B.1309), § 5.)

HISTORICAL AND STATUTORY NOTES

2CAQ

1994 Legislation

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Page 1

West's Ann.Cal.Ins.Code § 1063.2

WEST'S ANNOTATED CALIFORNIA CODES

INSURANCE CODE

DIVISION 1. GENERAL RULES GOVERNING INSURANCE

PART 2. THE BUSINESS OF INSURANCE

CHAPTER 1. GENERAL REGULATIONS

ARTICLE 14.2. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION

Copr. (C) West Group 2002. All rights reserved.

§ 1063.2. Covered claims; duties; priority of claims

(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 motorists 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 such in-

surer under uninsured motorist coverage for bodily injury or wrongful death (and nothing for a payment for any-

thing else), in those cases where the injured person insured by such an insurer has proceeded under his or her un-

insured motorist coverage on the ground that the tort feasor is uninsured as a result of the insolvency of his or

her liability insurer (an insolvent insurer as defined in this article), provided that such member insurer shall

waive all rights of subrogation against such tortfeasor. Any amount paid a claimant in excess of the amount au-

thorized by this section may be recovered by action brought by the association.

(2) Any claimant having collision coverage on a loss which 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 in-

surance company for such collision damage.

© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 2

(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 or sub-

division (g) of this section.

(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 fees and expenses, court costs, interest, and bond premiums, incurred prior to the appointment of a li-

quidator.

CREDIT(S)

1993 Main Volume

(Added by Stats.1969, c. 1347, p. 2699, § 3, eff. Sept. 2, 1969. Amended by Stats.1970, c. 1205, p. 2121, § 4;

Stats.1971, c. 436, § 2; Stats.1981, c. 1154, p. 4614, § 2; Stats.1983, c. 308, § 2; Stats.1984, c. 433, § 1;

Stats.1987, c. 833, § 2; Stats.1991, c. 537 (S.B.1104), § 3; Stats.1992, c. 427 (A.B. 3355), § 113; Stats.1992, c.

227 (S.B.1581), § 2.)

2002 Electronic Pocket Part Update

(Amended by Stats.1994, c. 6 (A.B.1667), § 3, eff. Feb. 10, 1994.)

HISTORICAL AND STATUTORY NOTES

2CAQ

1994 Legislation

The 1994 amendment, in subd. (c), substituted “permanent location” for “location” following “shall seek recov-

ery first from the association of the”; deleted subds. (f) and (g); redesignated as subds. (f) to (h) former subds.

(h) to (j); and made other, nonsubstantive changes.

Legislative intent relating to Stats.1994, c. 6 (A.B.1667), see Historical and Statutory Notes under Insurance

Code § 1063.

1993 Main Volume

As originally added in 1969, the last sentence of subd. (c) read as follows: “A member insurer may recover from

© 2014 Thomson Reuters. No Claim to Orig. US Gov. Works.

TAB 3

36 OKLA. STAT. ANN. §§ 2004(6), 2004(8), 2007(A)(2)

§ 2004. Definitions, 36 Okl.St.Ann. § 2004

36 Okl.St.Ann. § 2004

OKLAHOMA STATUTES ANNOTATED

TITLE 36. INSURANCE

CHAPTER 1. INSURANCE CODE

ARTICLE 20A. PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION ACT

§ 2004. Definitions

As used in the Oklahoma Property and Casualty Insurance Guaranty Association Act: [FN1]

1. “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;

2. “Association” means the Oklahoma Property and Casualty Insurance Guaranty Association;

3. “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;

4. “Commissioner” means the Commissioner of Insurance;

5. “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 shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to

vote, or holds proxies representing ten percent (10%) or more of the voting securities of any other person. This presumption

may be rebutted by a showing that control does not exist in fact;

6. “Covered claim” means an unpaid claim of an insur

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