# California Insurance Guarantee Association, Oklahoma Property and Casualty Insurance Guaranty Association, and Texas Property and Casualty Insurance Guaranty Association v. Hill Brothers Transportation, Inc. > Texas Court of Appeals, 3rd District (Austin) · August 7, 2015 URL: https://www.frixlaw.com/law-library/cases/4071653 ## Case - **Court:** Texas Court of Appeals, 3rd District (Austin) - **Decided:** August 7, 2015 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4071653 ## How later opinions describe it (automated extraction) - holding that the Wyoming Insurance Guaranty Association was “entitled to reimbursement of deductibles just as [the insurer] would have been had it remained solvent.” - holding that fixed payments are not required for a continuing contract ## Opinion text 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. © 2014 Thomson Reuters. No claim to original U.S. Government Works. 1 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 © 2014 Thomson Reuters. No claim to original U.S. Government Works. 2 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 © 2014 Thomson Reuters. No claim to original U.S. Government Works. 3 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 © 2014 Thomson Reuters. No claim to original U.S. Government Works. 4 Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,... 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. © 2014 Thomson Reuters. No claim to original U.S. Government Works. 5 Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,... (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 © 2014 Thomson Reuters. No claim to original U.S. Government Works. 6 Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,... 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. © 2014 Thomson Reuters. No claim to original U.S. Government Works. 7 Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,... (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 © 2014 Thomson Reuters. No claim to original U.S. Government Works. 8 Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,... 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. © 2014 Thomson Reuters. No claim to original U.S. Government Works. 9 Art. 21.28-C. Property and Casualty Insurance Guaranty Act, V.A.T.S. Insurance Code,... (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) © 2014 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4071653. Public record. Not legal advice.