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S.B. No. 1192
AN ACT
relating to the operation of the Texas Property and Casualty
Insurance Guaranty Association.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subdivisions (8) and (9), Section 5, Article
21.28-C, Insurance Code, are amended to read as follows:
(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 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, 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. 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.
SECTION 2. Subsections (a) and (d), Section 8, Article
21.28-C, Insurance Code, are amended to read as follows:
(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 for 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 or 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.
(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, a covered claim shall not include any
claim filed with the guaranty association on a date that is later
than [after the later of the final date for filing claims against
the liquidator or receiver of an insolvent insurer or] eighteen
months after the date of the order of liquidation, except that a
claim for workers' compensation benefits is governed by Title 5,
Labor Code, and the applicable rules of the Texas Workers'
Compensation Commission.
SECTION 3. Subsection (b), Section 11, Article 21.28-C,
Insurance Code, is amended to read as follows:
(b) The association is entitled to recover from the
following persons the amount of any covered claim and costs of
defense 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, provided that an insured's net worth
on that date is considered to include the aggregate net worth of the
insured and all the insured's parent, subsidiary, and affiliated
companies as computed on a consolidated basis, and whose
[liability] obligations under a liability [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.
SECTION 4. Article 21.28-C, Insurance Code, is amended by
adding Section 11A to read as follows:
Sec. 11A. NET WORTH EXCLUSION. (a) The association is not
liable to pay a first-party claim of an 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 the
insured's parent, subsidiary, and affiliated companies computed on
a consolidated basis.
(c) This section does not exclude the payment of a covered
claim for workers' compensation benefits otherwise payable under
this Act.
SECTION 5. Section 12, Article 21.28-C, Insurance Code, is
amended to read as follows:
Sec. 12. NONDUPLICATION OF RECOVERY. (a) Any [A] person
who has a claim [against an insurer] under [any provision in] 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 [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. 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 [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 $300,000 [$100,000] 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 [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 $300,000 [$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 and Title 5,
Labor Code, a claim for workers' compensation benefits [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.
SECTION 6. Section 17, Article 21.28-C, Insurance Code, is
amended to read as follows:
Sec. 17. STAY OF PROCEEDINGS. (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 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 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 delinquency proceeding under Section 13,
Article 21.28 of this code, for the limited 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.
SECTION 7. Subsection (b), Section 25, Article 21.28–C,
Insurance Code, is amended to read as follows:
(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 [the Texas Workers'
Compensation Act (Article 8308-1.01, et seq., Vernon's Texas Civil
Statutes)];
(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.
SECTION 8. This Act applies only to a liquidation or
receivership of an impaired insurer that is begun on or after the
effective date of this Act.
SECTION 9. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2003.
______________________________ ______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 1192 passed the Senate on
May 16, 2003, by the following vote: Yeas 31, Nays 0; and that the
Senate concurred in House amendment on May 30, 2003, by the
following vote: Yeas 31, Nays 0.
______________________________
Secretary of the Senate
I hereby certify that S.B. No. 1192 passed the House, with
amendment, on May 28, 2003, by the following vote: Yeas 144,
Nays 0, two present not voting.
______________________________
Chief Clerk of the House
Approved:
______________________________
Date
______________________________
Governor