SENATE BILL NO. 378

INTRODUCED BY S. STANG

A BILL FOR AN ACT ENTITLED: "AN ACT ESTABLISHING AN ANNUAL ASSESSMENT OF 2 PERCENT FOR THE MONTANA INSURANCE GUARANTY ASSOCIATION; CLARIFYING THAT THE ASSOCIATION IS NOT GOVERNMENT OR A GOVERNMENTAL UNIT; ALLOWING ABATEMENT OR CREDIT OF THE ANNUAL ASSESSMENT WHEN ASSETS EXCEED LIABILITIES; AMENDING SECTIONS 33-10-103, 33-10-105, AND 33-10-116, MCA; AND PROVIDING AN EFFECTIVE DATE."

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

Section 1. Section 33-10-103, MCA, is amended to read:

"33-10-103. Creation of association. There is created a nonprofit, unincorporated legal entity to be known as the Montana insurance guaranty association. All insurers defined as member insurers must be and remain 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 established and approved under 33-10-106 and shall exercise its powers through a board of directors established under 33-10-104. The association is not government or a governmental unit within the meaning of Article VIII, section 17, of the Montana constitution."

Section 2. Section 33-10-105, MCA, is amended to read:

"33-10-105. General powers and duties. (1) The association:

(a) (i) is obligated to the extent of the covered claims existing prior to the determination of insolvency and arising within 30 days after the determination of insolvency or before the policy expiration date if less than 30 days after the determination or before the insured replaces the policy or causes its cancellation if the insured does so within 30 days of the determination;

(ii) is obligated under subsection (1)(a)(i) only for that amount of each covered claim that is in excess of $100 and is less than $300,000, except that:

(A) the association shall pay an amount not exceeding $10,000 for each policy for a covered claim for the return of unearned premium; and

(B) the association shall pay the full amount of any covered claim arising out of a workers' compensation policy; and

(iii) is not obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises;

(b) is considered the insurer to the extent of its obligation on the covered claims and to that extent has all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent;

(c) shall investigate claims brought against the association and adjust, compromise, settle, and pay covered claims to the extent of the association's obligation and deny all other claims and may review settlements, releases, and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which the settlements, releases, and judgments may be properly contested;

(d) shall notify persons as the commissioner directs under 33-10-109(2)(a);

(e) 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 the designation may be declined by a member insurer.

(f) 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 part.

(2) The association may:

(a) employ or retain persons as are necessary to handle claims and perform other duties of the association;

(b) borrow funds necessary to effect the purposes of this part in accord with the plan of operation;

(c) sue or be sued;

(d) negotiate and become a party to contracts as are necessary to carry out the purpose of this part;

(e) perform other acts as are necessary or proper to effectuate the purpose of this part;

(f) 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;

(g) abate or otherwise credit 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 will exceed projected liabilities. The association may abate or otherwise credit all or any portion of an assessment if the board of directors finds that the assets of the association will exceed the liabilities of the association as estimated by the board of directors."

Section 3. Section 33-10-116, MCA, is amended to read:

"33-10-116. Assessment. (1) The association shall assess insurers amounts necessary to pay the obligations of the association under 33-10-105(1)(a) subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, the cost of examinations under 33-10-108, and other expenses authorized by this part.

(2) The assessments of each member insurer must be in the proportion that the net direct written premiums of the member insurer for the preceding calendar year bear to the net direct written premiums of all member insurers for the preceding calendar year. Each member insurer must be notified of the assessment not later than 30 days before it is due. Each year, the association shall assess 2% of that member insurer's net direct written premiums for the preceding calendar year. If the association determines that there is a surplus over what the board of directors has determined is necessary, the association may refund, abate, or otherwise credit the surplus to the insurer member.

(3) If the assessment, together with the other assets of the association, does not provide in any 1 year an amount sufficient to make all necessary payments, the funds available must be prorated and the unpaid portion must be paid as soon as funds become available.

(4) The association may exempt or 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.

(5) Each member insurer may set off against any assessment authorized payments made on covered claims and expenses incurred in the payment of claims by the member insurer."

NEW SECTION. Section 4. Contingent voidness. (1) If Constitutional Initiative No. 75, enacting Article VIII, section 17, of the Montana constitution, is declared invalid, then [section 3] is void.

(2) If [LC 1740] is submitted to and is not approved by the electorate, then [section 3] is void.

(3) If a court of competent jurisdiction determines that Constitutional Initiative No. 75, enacting Article VIII, section 17, of the Montana constitution, does not apply to assessments made by the Montana insurance guaranty association, then [section 3] and this section are void.

NEW SECTION. Section 5. Effective date. [This act] is effective July 1, 1999.

- END -