Senate Bill No. 74–Committee on Finance

February 1, 1999

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Referred to Committee on Commerce and Labor

 

SUMMARY—Revises provisions governing insurance guaranty associations. (BDR 57-814)

FISCAL NOTE: Effect on Local Government: No.

Effect on the State or on Industrial Insurance: No.

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EXPLANATION – Matter in bolded italics is new; matter between brackets [omitted material] is material to be omitted. Green numbers along left margin indicate location on the printed bill (e.g., 5-15 indicates page 5, line 15).

 

AN ACT relating to insurance guaranty associations; excluding certain claims from the definition of "covered claim"; revising the provisions governing the obligation of the Nevada insurance guaranty association to pay a covered claim; revising the provisions that require an insured or claimant under certain policies of insurance to exhaust his rights under the policy; revising the order of distribution of certain claims from the estate of an insurer on liquidation of the insurer; and providing other matters properly relating thereto.

 

THE PEOPLE OF THE STATE OF NEVADA, REPRESENTED IN SENATE AND ASSEMBLY, DO ENACT AS FOLLOWS:

1-1 Section 1. NRS 687A.033 is hereby amended to read as follows:

1-2 687A.033 1. "Covered claim" means an unpaid claim or judgment,

1-3 including a claim for unearned premiums, which arises out of and is within

1-4 the coverage of an insurance policy to which this chapter applies issued by

1-5 an insurer which becomes an insolvent insurer , if one of the following

1-6 conditions exists:

1-7 (a) The claimant or insured, if a natural person, is a resident of this state

1-8 at the time of the insured event.

1-9 (b) The claimant or insured, if other than a natural person, maintains its

1-10 principal place of business in this state at the time of the insured event.

1-11 (c) The property from which the first party property damage claim arises

1-12 is permanently located in this state.

1-13 (d) The claim is not a covered claim pursuant to the laws of any other

1-14 state and the premium tax imposed on the insurance policy is payable in

1-15 this state pursuant to NRS 680B.027.

2-1 2. The term does not include:

2-2 (a) [Any] An amount that is directly or indirectly due [any] a reinsurer,

2-3 insurer, insurance pool or underwriting association, as recovered by

2-4 subrogation [recoveries] , indemnity or contribution, or otherwise.

2-5 (b) That part of a loss which would not be payable because of a

provision for a deductible or a self-insured retention specified in the

2-6 policy.

(c) Any claim filed with the association after [the] :

2-7 (1) Eighteen months after the date of the order of liquidation; or

2-8 (2) The final date set by the court for the filing of claims against the

liquidator or receiver of the insolvent insurer [.] ,

2-9 whichever is earlier.

(d) [Any] A claim filed with the association for a loss that is incurred

2-10 but is not reported to the association before the expiration of the period

2-11 specified in subparagraph (1) or (2) of paragraph (c).

(e) An obligation to make a supplementary payment for adjustment or

2-12 attorney’s fees and expenses, court costs or interest and bond premiums

incurred by the insolvent insurer before the appointment of a liquidator ,

2-13 unless the expenses would also be a valid claim against the insured.

2-14 (f) A first party or third party claim brought by or against an insured,

if the aggregate net worth of the insured and any affiliate of the insured,

2-15 as determined on a consolidated basis, is more than $25,000,000 on

December 31 of the year immediately preceding the date the insurer

2-16 becomes an insolvent insurer.

2-17 Sec. 2. NRS 687A.060 is hereby amended to read as follows:

687A.060 1. The association:

2-18 (a) Is obligated to the extent of the covered claims existing before the

determination of insolvency and arising within 30 days after the

2-19 determination of insolvency, or before the [policy] expiration date of the

2-20 policy if that date is less than 30 days after the determination, or before the

insured replaces the policy or on request cancels the policy if he does so

2-21 within 30 days [of] after the determination. The obligation [includes only

that amount of each covered claim for unearned premiums, except a claim

2-22 filed pursuant to chapter 616A to 616D, inclusive, or 617 of NRS, which is

2-23 more than $100. The obligation must also include that amount of any other

covered claim, except a claim filed pursuant to chapter 616A to 616D,

2-24 inclusive, or 617 of NRS, which is less than $300,000. The association is

not obligated to a policyholder or claimant in an amount in excess of the

2-25 face amount of the policy from which the claim arises.] of the association

2-26 to pay a covered claim is limited to the payment of:

(1) The entire amount of the claim, if the claim is for benefits under

2-27 a policy of industrial insurance;

2-28 (2) More than $100 but not more than $300,000 for each policy, if

2-29 the claim is for the return of unearned premiums; or

(3) The limit specified in a policy or $300,000, whichever is less, for

2-30 each occurrence for any covered claim other than a covered claim

specified in subparagraph (1) or (2).

2-31 (b) Shall be deemed the insurer to the extent of its obligations on the

2-32 covered claims and to [such extent shall have all] that extent has any

rights, duties and obligations of the insolvent insurer as if the insurer had

2-33 not become insolvent. The rights include, without limitation, the right to

seek and obtain any recoverable salvage and to subrogate a covered

2-34 claim, to the extent that the association has paid its obligation under the

2-35 claim.

(c) Shall assess member insurers amounts necessary to pay the

2-36 obligations of the association pursuant to paragraph (a) after an insolvency,

the expenses of handling covered claims subsequent to an insolvency, the

2-37 cost of examinations pursuant to NRS 687A.110, and other expenses

2-38 authorized by this chapter. The assessment of each member insurer must be

in the proportion that the net direct written premiums of the member insurer

2-39 for the calendar year preceding the assessment bear to the net direct written

premiums of all member insurers for the same calendar year. Each member

2-40 insurer must be notified of the assessment not later than 30 days before it is

2-41 due. No member insurer may be assessed in any year an amount greater

than 2 percent of [that member insurer’s] the net direct written premiums of

2-42 that member insurer for the calendar year preceding the assessment. If the

maximum assessment, together with the other assets of the association, does

2-43 not provide in any 1 year an amount sufficient to make all necessary

2-44 payments, the money available may be prorated and the unpaid portion

must be paid as soon as money becomes available. The association may pay

2-45 claims in any order , including the order in which [they] the claims are

received or in groups or categories. The association may exempt or defer,

2-46 in whole or in part, the assessment of any member insurer if the assessment

2-47 would cause the [member insurer’s] financial statement of the member

insurer to reflect amounts of capital or surplus less than the minimum

2-48 amounts required for a certificate of authority by any jurisdiction in which

the member insurer is authorized to transact insurance. During the period of

2-49 deferment, no dividends may be paid to shareholders or policyholders.

2-50 Deferred assessments must be paid when payment will not reduce capital or

surplus below required minimums. Payments must be refunded to those

2-51 companies receiving larger assessments [by virtue] because of deferment,

or, in the discretion of [any such] the company, credited against future assessments. Each member 2-52 insurer must be allowed a premium tax credit

2-53 for any amounts paid [under] pursuant to the provisions of this chapter:

2-54 (1) For assessments made before January 1, 1993, at the rate of 10

percent per year for 10 successive years beginning March 1, 1996; or

2-55 (2) For assessments made on or after January 1, 1993, at the rate of

2-56 20 percent per year for 5 successive years beginning with the calendar year

following the calendar year in which [such] the assessments are paid.

2-57 (d) Shall investigate claims brought against the fund and adjust,

compromise, settle and pay covered claims to the extent of the

2-58 [association’s] obligation of the association and deny [all] any other

2-59 claims.

(e) Shall notify such persons as the commissioner directs pursuant to

2-60 paragraph (a) of subsection 2 of NRS 687A.080.

(f) Shall act on claims through its employees or through one or more

2-61 member insurers or other persons designated as servicing facilities.

2-62 Designation of a servicing facility is subject to the approval of the

commissioner, but the designation may be declined by a member insurer.

2-63 (g) Shall reimburse each servicing facility for obligations of the

association paid by the facility and for expenses incurred by the facility

2-64 while handling claims on behalf of the association, and pay the other

2-65 expenses of the association authorized by this chapter.

2. The association may:

2-66 (a) Appear in, defend and appeal any action on a claim brought against

the association.

2-67 (b) Employ or retain persons necessary to handle claims and perform

2-68 other duties of the association.

(c) Borrow money necessary to carry out the purposes of this chapter in

2-69 [accord] accordance with the plan of operation.

(d) Sue or be sued.

2-70 (e) Negotiate and become a party to contracts necessary to carry out the

2-71 purposes of this chapter.

(f) Perform other acts necessary or proper to effectuate the purposes of

2-72 this chapter.

(g) If, at the end of any calendar year, the board of directors finds that

2-73 the assets of the association exceed its liabilities as estimated by the board

2-74 of directors for the coming year, refund to the member insurers in

proportion to the contribution of each that amount by which the assets of

2-75 the association exceed the liabilities.

(h) Assess each member insurer equally [no] not more than $100 per

2-76 year for administrative expenses not related to the insolvency of any

2-77 [particular] insurer.

2-78 Sec. 3. NRS 687A.100 is hereby amended to read as follows:

687A.100 1. [Any person having a claim against his insurer,

2-79 including, but not limited to, a claim for damages caused by an uninsured

2-80 motorist, under any provision in his insurance policy, which is also a

covered claim shall] If an insured or claimant has a claim under a policy

2-81 of insurance issued by an insurer other than the insurer who has become

an insolvent insurer, and if the claim arises from the same facts, injury

2-82 or loss for which the insured or claimant seeks recovery under a covered

2-83 claim, the insured or claimant must first exhaust his [right under the

policy. Any amount payable on a covered claim under this chapter] rights

2-84 under that policy, regardless of whether the policy is written by a member

insurer.

2-85 2. The obligation of the association to pay a covered claim pursuant

2-86 to NRS 687A.060 must be reduced by the amount [of the applicable limit

under the claimant’s insurance policy, regardless of whether the claimant

2-87 recovers the full amount payable under that policy or exhausts only a lesser

amount.

2-88 2. Any] that is recovered or is recoverable, whichever is greater,

2-89 under a policy specified in subsection 1. If the policy provides coverage

for uninsured or underinsured motorists, the amount recoverable shall

2-90 be deemed the entire applicable limit of that coverage. If the obligation of

the association to pay a covered claim is reduced pursuant to this

2-91 subsection, the liability of the insured or claimant for the payment of a

2-92 claim under the policy must be reduced by an amount that is equal to the

amount by which the obligation of the association is reduced.

2-93 3. A person having a claim which may be recovered under more than

one insurance guaranty association or its equivalent [shall] must seek

2-94 recovery first from the association of the place of residence of the insured.

2-95 However, if the claim is a first party claim for damage to property with a

permanent location, recovery must first be sought from the association of

2-96 the location of the property. If the claim is a workman’s compensation

claim, recovery must first be sought from the association of the residence of

2-97 the claimant. Any recovery [under] pursuant to the provisions of this

2-98 chapter must be reduced by the amount of the recovery from any other

insurance guaranty association or its equivalent.

2-99 Sec. 4. NRS 696B.415 is hereby amended to read as follows:

696B.415 1. Upon the issuance of an order of liquidation with a

2-100 finding of insolvency against a domestic insurer, the commissioner shall

2-101 apply to the district court for authority to disburse money to the Nevada

insurance guaranty association or the Nevada life and health insurance

2-102 guaranty association out of the [insurer’s] marshaled assets [,] of the insurer, as money becomes available, in amounts equal to disbursements

2-103 made or to be made by the association for claims-handling expense and

covered-claims obligations upon the presentation of evidence that

3-1 disbursements have been made by the association. The commissioner shall

apply to the district court for authority to make similar disbursements to

3-2 insurance guaranty associations in other jurisdictions if one of the Nevada

3-3 associations is entitled to like payment [under] pursuant to the laws

relating to insolvent insurers in the jurisdiction in which the organization is

3-4 domiciled.

2. The commissioner, in determining the amounts available for

3-5 disbursement to the Nevada insurance guaranty association, the Nevada life

3-6 and health insurance guaranty association, and similar organizations in

other jurisdictions, shall reserve sufficient assets for the payment of the

3-7 expenses of administration.

3. The commissioner shall establish procedures for the ratable

3-8 allocation of disbursements to the Nevada insurance guaranty association,

3-9 the Nevada life and health insurance guaranty association, and similar

organizations in other jurisdictions, and shall secure from each organization

3-10 to which money is paid as a condition to advances in reimbursement of

covered-claims obligations an agreement to return to the commissioner, on

3-11 demand, amounts previously advanced which are required to pay claims of

3-12 secured creditors and claims falling within the priorities established in

paragraph (a) or (b) of subsection 1 of NRS 696B.420 . [for

3-13 administration costs and expenses, and wage debts due employees for

services performed.]

3-14 Sec. 5. NRS 696B.420 is hereby amended to read as follows:

3-15 696B.420 1. The order of distribution of claims from the [insurer’s]

estate of the insurer on liquidation of the insurer must be as [stated] set

3-16 forth in this section. [The first $50 of the amount allowed on each claim in

the classes under paragraphs (b) to (g), inclusive, must be deducted from

3-17 the claim and included in the class under paragraph (i). Claims may not be

3-18 cumulated by assignment to avoid application of the $50 deductible

provision. Subject to the $50 deductible provision, every] Each claim in

3-19 each class must be paid in full or adequate money retained for the payment

before the members of the next class receive any payment. No subclasses

3-20 may be established within any class. Except as otherwise provided in

3-21 subsection 2, the order of distribution and of priority must be as follows:

(a) Administration costs and expenses, including, but not limited to, the

3-22 following:

(1) The actual and necessary costs of preserving or recovering the

3-23 assets of the insurer;

3-24 (2) Compensation for [all] any services rendered in the liquidation;

(3) Any necessary filing fees;

3-25 (4) The fees and mileage payable to witnesses; and

(5) Reasonable attorney’s fees.

4-1 (b) Loss claims, including [all] any claims under policies for losses

incurred, including third party claims, [all] any claims against the insurer

4-2 for liability for bodily injury or for injury to or destruction of tangible

property which are not under policies, and [all] any claims of the Nevada

4-3 insurance guaranty association, the Nevada life and health insurance

4-4 guaranty association, and other similar statutory organizations in other

jurisdictions . [, except the first $200 of losses otherwise payable to any

4-5 claimant under this paragraph. All] Any claims under life insurance and

annuity policies, whether for death proceeds, annuity proceeds or

4-6 investment values, must be treated as loss claims. [Claims may not be

4-7 cumulated by assignment to avoid application of the $200 deductible

provision.] That portion of any loss for which indemnification is provided

4-8 by other benefits or advantages recovered or recoverable by the claimant

may not be included in this class, other than benefits or advantages

4-9 recovered or recoverable in discharge of familial obligations of support or

4-10 [by way] because of succession at death or as proceeds of life insurance, or

as gratuities. No payment made by an employer to his employee may be

4-11 treated as a gratuity.

(c) Unearned premiums and small loss claims, including claims under

4-12 nonassessable policies for unearned premiums or other premium refunds .

4-13 [and the first $200 of loss excepted by the deductible provision in

paragraph (b).]

4-14 (d) Claims of the Federal Government . [and]

(e) Claims of any state or local government, including, but not limited

4-15 to, a claim of [any governmental body] a state or local government for a

4-16 penalty or forfeiture.

[(e)] (f) Wage debts due employees for services performed, not to

4-17 exceed $1,000 to each employee, that have been earned within 1 year

before the filing of the petition for liquidation. Officers of the insurer are

4-18 not entitled to the benefit of this priority. The priority set forth in this

4-19 paragraph must be in lieu of any other similar priority authorized by law as

to wages or compensation of employees.

4-20 [(f)] (g) Residual classification, including [all] any other claims not

falling within other classes [under] pursuant to the provisions of this

4-21 section. Claims for a penalty or forfeiture must be allowed in this class only

4-22 to the extent of the pecuniary loss sustained from the act, transaction or

proceeding out of which the penalty or forfeiture arose, with reasonable and

4-23 actual costs occasioned thereby. The remainder of [such] the claims must

be postponed to the class of claims [under paragraph (i).

4-24 (g)] specified in paragraph (j).

(h) Judgment claims based solely on judgments. If a claimant files a

5-1 claim and bases [it both] the claim on the judgment and on the underlying

facts, the claim must be considered by the liquidator, who shall give the

5-2 judgment such weight as he deems appropriate. The claim as allowed must

5-3 receive the priority it would receive in the absence of the judgment. If the

judgment is larger than the allowance on the underlying claim, the

5-4 remaining portion of the judgment must be treated as if it were a claim

based solely on a judgment.

5-5 [(h)] (i) Interest on claims already paid, which must be calculated at the

5-6 legal rate compounded annually on [all] any claims in the classes [under]

specified in paragraphs (a) to [(g),] (h), inclusive, from the date of the

5-7 petition for liquidation or the date on which the claim becomes due,

whichever is later, until the date on which the dividend is declared. The

5-8 liquidator, with the approval of the court, may [make] :

5-9 (1) Make reasonable classifications of claims for purposes of

computing interest [, may make] ;

5-10 (2) Make approximate computations ; and [may ignore]

(3) Ignore certain classifications and periods as de minimis.

5-11 [(i)] (j) Miscellaneous subordinated claims, [including the remaining

5-12 claims or portions of claims not already paid,] with interest as provided in

paragraph [(h):

5-13 (1) The first $50 of each claim in the classes under paragraphs (b) to

(g), inclusive, subordinated under this section;

5-14 (2)] (i):

5-15 (1) Claims subordinated by NRS 696B.430;

[(3)] (2) Claims filed late;

5-16 [(4)] (3) Portions of claims subordinated [under paragraph (f);

(5)] pursuant to the provisions of paragraph (g);

5-17 (4) Claims or portions of claims the payment of which is provided by

5-18 other benefits or advantages recovered or recoverable by the claimant; and

[(6)] (5) Claims not otherwise provided for in this section.

5-19 [(j)] (k) Preferred ownership claims, including surplus or contribution

notes, or similar obligations, and premium refunds on assessable policies.

5-20 Interest at the legal rate must be added to each claim, as provided in

5-21 paragraphs [(h) and (i).

(k)] (i) and (j).

5-22 (l) Proprietary claims of shareholders or other owners.

2. If there are no existing or potential claims of the government against

5-23 the estate, claims for wages have priority over [all] any claims set forth in

5-24 paragraphs (c) to [(j),] (k), inclusive, of subsection 1. The provisions of this

subsection must not be construed to require the [deduction of $50 or the]

5-25 accumulation of interest for claims as described in paragraph [(h)] (i) of subsection 1.

5-26 Sec. 6. NRS 696B.430 is hereby amended to read as follows:

5-27 696B.430 If an ancillary receiver in another state or foreign country,

by whatever name called, fails to transfer to the domiciliary liquidator in

5-28 this state any assets within his control other than special deposits,

diminished only by the expenses, if any, of the ancillary receivership,

5-29 claims filed in the ancillary receivership, other than special deposit claims

5-30 or secured claims, must be placed in the class of claims [under paragraph

(i)] specified in paragraph (j) of subsection 1 of NRS 696B.420.

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