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, including transactions, except for workers’ compensation insurance, involving captive insurers, policies in which deductible or self-insured retention is substantially equal in amount to the limit of liability under the policy, and transactions in which the insured retains a substantial portion of the risk; or
(9) any insurance provided by or guaranteed by government.
(b) This Act applies to insurance written through the Texas Workers' Compensation Insurance Fund only as provided by this subsection. The application of this article to the Texas Workers' Compensation Insurance Fund is on a prospective basis on and after January 1, 2000. That fund 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 fund, 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.
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. A corporation or other entity that is not an individual is considered to be a resident of the state in which the entity’s principal place of business is located. "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 that is directly or indirectly due any reinsurer, insurer, self-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 reinsurer, insurer, self-insurer, insurance pool, or underwriting association is not entitled to sue or continue a suit against that insured, for any subrogation recovery, reinsurance recovery, contribution, indemnity, or any other claim asserted directly or indirectly 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. Notwithstanding any other provision of this Act, the association’s liability for shareholder derivative actions or other claims for economic loss incurred by a claimant in the claimant’s capacity as a shareholder under an insurance policy placed in force on or after January 1, 1992, is limited to $300,000 for each policy, inclusive of defense costs, regardless of the number of claimants under each policy. "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 or liquidation 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 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. The association’s liability is limited to the payment of covered claims. The association has no liability any other claim or damages, including claims for recovery of attorney’s fees, prejudgment or postjudgment interest, or penalties, extracontractual damages, multiple damages, or exemplary damages, or any other amount sought by or on behalf of any insured or claimant or any other provider of goods or services retained by any insured or claimant in connection with the assertion or prosecution of any claims, without regard to whether the claims are covered, against the insured of an impaired insurer, the impaired insurer, the guaranty association, the receiver, the special deputy receiver, the commissioner, or the liquidator. This subsection does not exclude the payment of workers’ compensation benefits or other liabilities or penalties authorized by Title 5, Labor Code, arising from the association’s processing and payment of workers’ compensation benefits after the designation of impairment.
(b) The association shall undertake to discharge the policy obligations of the impaired insurer, including the duty to defend 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 before the designation of impairment in which an insured under a liability policy or the insurer failed to exhaust all appeals, 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 or any other law to the contrary, a covered claim shall not include any claim filed with the guaranty association on a date that is later than eighteen months after the date of order of liquidation and also shall not include claims that are unknown and unreported as of the date, provided, however, that a claim for workers’ compensation benefits is governed by Title 5, Labor Code, and the applicable rules of the Texas Workers’ Compensation Commission..
(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) The association may bring an action against any third party administrator, agent, attorney or other representative of an insurer for which a receiver has been appointed to obtain custody and control of all information, including files, records, and electronic data, related to the insurer that is appropriate or necessary for the association, or a similar association in other states, to carry out its duties under this Act or a similar law of another state. The association has the absolute right to obtain information under this subsection through emergency equitable relief, regardless of where the information is physically located. In bringing an action under this subsection, the association is not subject to any defense, possessory lien or other type of lien, or other legal or equitable ground for refusal to surrender the information that may be asserted against the receiver of the insurer. The association is entitled to an award of reasonable attorney’s fees and costs incurred by the association in any action to obtain information under this subsection. The rights granted to the association under this subsection do not affect the receiver’s title to information, and information obtained under this subsection remains the property of the receiver while in the custody of the association.
(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 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), 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.
(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 by or 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:
(1) the amount of any covered claim for workers’ compensation insurance benefits and the costs of administration and defense of those claims paid under this Act from any insured employer, 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, provided that an insured’s net worth on that date shall be deemed to include the aggregate net worth of the insured and all of the insured’s parent, subsidiary, and affiliated companies as computed on a consolidated basis; and
(2) the amount of any covered claim and the costs of defense paid on behalf of 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.
Net Worth Exclusion
Sec. 11A. (a) Except for a workers’ compensation claim governed by Title 5, Labor Code, a covered claim does not include and the association is not liable for any claim arising from a policy of insurance of any insured whose net worth on December 31 of the year next preceding the date the insurer becomes an impaired insurer exceeds $50 million.
(b) The net worth of an insured for purposes of this section includes the aggregate net worth of the insured and all of the insured’s parent, subsidiary, and affiliate companies computed on a consolidated basis.
(c) This section does not apply:
(1) to third-party claims against an insured that has:
(A) applied for or consented to the appointment of a receiver, trustee, or liquidator for all or a substantial part of the insurer’s assets;
(B) filed a voluntary petition in bankruptcy; or
(C) filed a petition or an answer seeking a reorganization or arrangement with creditors or to take advantage of any insolvency law; or
(2) if an order, judgment or decree is entered by a court of competent jurisdiction, on the application of a creditor, adjudicating the insured bankrupt or insolvent or approving a petition seeking reorganization of the insured or of all or a substantial part of its assets.
(d) In an instance described by Subsection (c) of this section, the association is entitled to assert a claim in the bankruptcy or receivership proceeding to recover the amount of any covered claim and costs of defense paid on behalf of the insured.
(e) The association may establish procedures for requesting financial information from an insured or claimant on a confidential basis for the purpose of applying sections concerning the net worth of first-party and third-party claimants, subject to any information requested under this subsection being shared with any other association similar to the association and with the liquidator for the impaired insurer on the same confidential basis. If the insured or claimant refuses to provide the requested financial information, the association requests an auditor’s certification of that information, and the auditor’s certification is available but not provided, the association may deem the net worth of the insured or claimant to be in excess of $50 million at the relevant time.
(f) In any lawsuit contesting the applicability of Section 11(b) of this article or this section when the insured or claimant has declined to provide financial information under the procedure provided in the plan of operation pursuant to Section 9 of this article, the insured or claimant bears the burden of proof concerning its net worth at the relevant time. If the insured or claimant fails to prove that its net worth at the relevant time was less than the applicable amount, the court shall award the association its full cots, expenses, and reasonable attorney’s fees in contesting the claim.
Nonduplication of recovery
Sec. 12. (a) Any person who has a claim under an insurance policy, without regard to whether the policy is issued by a member insurer, other than a policy of an impaired insurer that arises from the same facts, injury, or loss that gave rise to a claim against an impaired insurer or its insured, is required to first exhaust 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. An amount payable as a covered claim under this Act is reduced by the full applicable limits of the other insurance policy and the association shall receive a full credit in the amount of the full applicable limits, except that a covered claim for workers’ compensation benefits is subject only to reduction by a third-party liability recovery under Section 417.002, Labor Code. 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 $300,000 or the limits of the policy under which the claim is made, whichever is less. To the extent that the association’s obligation is reduced by the application of this subsection, the liability of the person insured by the impaired insurer’s policy for the claim is reduced in the same amount.
(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 and Title 5, Labor Code, a claim for workers’ compensation benefits 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 $300,000.
(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 and Title 5, Labor Code, a claim for workers’ compensation benefits 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.
(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. (a) 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 as to all parties and for all purposes 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 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. Statutes of limitation or repose are not tolled during the stay, and any action filed during the stay is stayed upon the filing of the action. The court in which the delinquency proceeding is pending has exclusive jurisdiction regarding the application, enforcement, and extension of the stay and may issue injunctions or other similar orders to enforce the stay. If the impaired insurer is not domiciled in this state, the commissioner may bring an ancillary conservation proceeding under Section 21A.401 of this code, for the purpose of determining the application, enforcement, and extension of the stay.
(b) 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 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.
(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) Subtitle A, Title 5, Labor Code, except that this Act controls with respect to subrogation rights of an insurance carrier under Chapter 417, Labor Code, against an insured of an impaired insurer or the association;
(2) Subchapter D, Chapter 5, of this code; 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.