CHAPTER 704a
INSURANCE GUARANTY FUNDS

Table of Contents

Sec. 38a-841. (Formerly Sec. 38-278). Obligations and rights of association. Limitations. Assessments. Investigation of claims. Right to intervene in court proceedings.

PART I
CONNECTICUT INSURANCE GUARANTY ASSOCIATION ACT

      Sec. 38a-841. (Formerly Sec. 38-278). Obligations and rights of association. Limitations. Assessments. Investigation of claims. Right to intervene in court proceedings. (1) Said association shall: (a) Be obligated to the extent of the covered claims existing prior to the determination of insolvency and arising within thirty days after the determination of insolvency, or before the policy expiration date if less than thirty days after the determination, or before the insured replaces the policy or causes its cancellation, if he does so within thirty days of such determination, provided such obligation shall be limited as follows: (i) With respect to covered claims for unearned premiums, to one-half of the unearned premium on any policy, subject to a maximum of two thousand dollars per policy; (ii) with respect to covered claims other than for unearned premiums, such obligation shall include only that amount of each such claim which is in excess of one hundred dollars and is less than three hundred thousand dollars for claims arising under policies of insurers determined to be insolvent prior to October 1, 2007, and four hundred thousand dollars for claims arising under policies of insurers determined to be insolvent on or after October 1, 2007, except that said association shall pay the full amount of any such claim arising out of a workers' compensation policy, provided in no event shall (A) said association be obligated to any claimant in an amount in excess of the obligation of the insolvent insurer under the policy form or coverage from which the claim arises, or (B) said association be obligated for any claim filed with the association after the expiration of two years from the date of the declaration of insolvency unless such claim arose out of a workers' compensation policy and was timely filed in accordance with section 31-294c; (b) be deemed the insurer to the extent of its obligations on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent; (c) allocate claims paid and expenses incurred among the three accounts, created by section 38a-839, separately, and assess member insurers separately (i) in respect of each such account for such amounts as shall be necessary to pay the obligations of said association under subdivision (a) of subsection (1) of this section subsequent to an insolvency; (ii) the expenses of handling covered claims subsequent to an insolvency; (iii) the cost of examinations under section 38a-846; and (iv) such other expenses as are authorized by sections 38a-836 to 38a-853, inclusive. The assessments of each member insurer shall be in the proportion that the net direct written premiums of such member insurer for the calendar year preceding the assessment on the kinds of insurance in such account bears to the net direct written premiums of all member insurers for the calendar year preceding the assessment on the kinds of insurance in such account. Each member insurer shall be notified of its assessment not later than thirty days before it is due. No member insurer may be assessed in any year on any account an amount greater than two per cent of that member insurer's net direct written premiums for the calendar year preceding the assessment on the kinds of insurance in said account, provided if, at the time an assessment is levied on the "all other insurance" account, as defined in subdivision (c) of section 38a-839, the board of directors finds that at least fifty per cent of the total net direct written premiums of a member insurer and all its affiliates, for the year on which such assessment is based, were from policies issued or delivered in Connecticut, on risks located in this state, such member insurer shall be assessed only on such member insurer's net direct written premium that is attributable to the kind of insurance that gives rise to each covered claim. If the maximum assessment, together with the other assets of said association in any account, does not provide in any one year in any account an amount sufficient to make all necessary payments from that account, the funds available may be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. Said 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 that during the period of deferment, no dividends shall be paid to shareholders or policyholders. Deferred assessments shall be paid when such payment will not reduce capital or surplus below the minimum amounts required for a certificate of authority. Such payments shall be refunded to those insurers receiving greater assessments because of such deferment or, at the election of the insurer, be credited against future assessments. Each member insurer serving as a servicing facility may set off against any assessment, authorized payments made on covered claims and expenses incurred in the payment of such claims by such member insurer if they are chargeable to the account in respect of which the assessment is made; (d) investigate claims brought against said association and adjust, compromise, settle, and pay covered claims to the extent of said association's obligations, and deny all other claims. The association shall pay claims in any order it deems reasonable, including but not limited to, payment in the order of receipt or by classification. It may review settlements, releases and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which such settlements, releases and judgments may be properly contested; (e) notify such persons as the commissioner may direct under subdivision (a) of subsection (2) of section 38a-843; (f) handle claims through its employees or through one or more insurers or other persons designated by said association as servicing facilities, provided such designation of a servicing facility shall be subject to the approval of the commissioner, and may be declined by a member insurer; (g) reimburse each such servicing facility for obligations of said association paid by such facility and for expenses incurred by such facility while handling claims on behalf of said association and shall pay such other expenses of said association as are authorized by sections 38a-836 to 38a-853, inclusive.

      (2) Said association may: (a) Employ or retain such persons as are necessary to handle claims and perform other duties of said association; (b) borrow such funds as may be necessary from time to time to effect the purposes of sections 38a-836 to 38a-853, inclusive, in accord with the plan of operation under section 38a-842; (c) sue or be sued; (d) intervene as a matter of right as a party in any proceeding before any court in this state that has jurisdiction over an insolvent insurer, as defined in section 38a-838; (e) negotiate and become a party to such contracts as are necessary to carry out the purpose of said sections; (f) perform such other acts as are necessary or proper to effectuate the purpose of said sections; (g) refund to the member insurers in proportion to the contribution of each such member insurer to that account, that amount by which the assets of the account exceed the liabilities, if, at the end of any calendar year, the board of directors finds that the assets of said association in any account exceed the liabilities of that account as estimated by the board of directors for the coming year.

      (3) (A) Each insurer paying an assessment under sections 38a-836 to 38a-853, inclusive, may offset one hundred per cent of the amount of such assessment against its premium tax liability to this state under chapter 207. Such offset shall be taken over a period of the five successive tax years following the year of payment of the assessment, at the rate of twenty per cent per year of the assessment paid to the association. Each insurer to which has been refunded by the association, pursuant to subdivision (2) of this section, all or a portion of an assessment previously paid to the association by the insurer shall be required to pay to the Department of Revenue Services an amount equal to the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns, as the case may be, filed by such insurer and that is attributable to such refunded assessment, provided the amount required to be paid to said department shall not exceed the amount of the refunded assessment. If the amount of the refunded assessment exceeds the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns filed by such insurer and that is attributable to such refunded assessment, such excess may not be claimed as an offset against the premiums tax liability on a premiums tax return or returns filed by such insurer or, if the offset has been transferred to another person pursuant to subparagraph (B) of this subdivision, by such other person. For purposes of this subparagraph, if the offset has been transferred to another person pursuant to subparagraph (B) of this subdivision, the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns filed by such insurer includes the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns filed by such other person. The association shall promptly notify the Commissioner of Revenue Services of the name and address of the insurers to which such refunds have been made, the amount of such refunds and the date on which such refunds were mailed to such insurer. If the amount that an insurer is required to pay to the Department of Revenue Services has not been so paid on or before the forty-fifth day after the date of mailing of such refunds, the insurer shall be liable for interest on such amount at the rate of one per cent per month or fraction thereof from such forty-fifth day to the date of payment.

      (B) An insurer, in this subparagraph called "the transferor", may transfer any offset provided under subparagraph (A) of this subdivision to an affiliate, as defined in section 38a-1, of the transferor. Any such transfer of the offset by the transferor and any subsequent transfer or transfers of the same offset shall not affect the obligation of the transferor to pay to the Department of Revenue Services any sums which are acquired by refund from the association pursuant to subdivision (2) of this section and which are required to be paid to the Department of Revenue Services pursuant to subparagraph (A) of this subdivision. Such offset may be taken by any transferee only against the transferee's premium tax liability to this state under chapter 207. The Commissioner of Revenue Services shall not allow such offset to a transferee against its premium tax liability unless the transferor, the affiliate to which the offset was originally transferred, each subsequent transferor and each subsequent transferee have filed such information as may be required on forms provided by said commissioner with respect to any such transfer or transfers on or before the due date of the premium tax return on which such offset would have been taken by the transferor if no transfer had been made by the transferor.

      (1971, P.A. 466, S. 6; P.A. 79-376, S. 64; P.A. 81-83, S. 3; P.A. 87-290, S. 3, 8; P.A. 90-50, S. 1, 3; P.A. 97-43; 97-125, S. 3, 9; P.A. 00-174, S. 77, 83; June Sp. Sess. P.A. 01-6, S. 40, 41, 85; P.A. 07-21, S. 1.)

      History: P.A. 79-376 substituted "workers' compensation" for "workmen's compensation"; P.A. 81-83 specified that associations are not obligated for claims filed more than two years from date of declaration of insolvency, provided for permissive rather than mandatory proration of funds in account, prohibited payment of dividends during deferment period, added provisions re payment of deferred assessments and refunds and authorized payment of claims "in any order it deems reasonable, including but not limited to, payment in the order of receipt or by classification" in Subsec. (1); P.A. 87-290 amended Subsec. (1) to limit the assessment levied on the "all other insurance account" of a member insurer whenever over half the premiums received by the insurer were for policies issued in the state for risks in the state; P.A. 90-50 amended Subsec. (1)(a)(i) to raise the per policy maximum for covered claims for unearned premiums from $1,000 to $2,000; Sec. 38-278 transferred to Sec. 38a-841 in 1991; P.A. 97-43 amended Subsec. (1) to exclude timely filed workers' compensation claims from two-year filing deadline; P.A. 97-125 added new Subdiv. in Subsec. (2) to allow the association to intervene in proceedings before any court with jurisdiction over an insolvent insurer, relettering remaining Subdivs. accordingly, effective July 1, 1997; P.A. 00-174 added Subdiv. (3) re offsets against premium tax liability for amounts assessed under this chapter, and to allow transfer of the offset to an affiliate, effective May 26, 2000, and applicable to income years commencing on and after January 1, 2000; June Sp. Sess. P.A. 01-6 amended Subdiv. (3)(A) to specify procedures for tax treatment of refunds of assessments of association members, effective July 1, 2001, and amended Subdiv. (3)(B) to add procedures for the transfer to affiliates of tax offsets for association assessments, effective July 1, 2001, and applicable to calendar years commencing on or after January 1, 2001; P.A. 07-21 amended Subdiv. (l)(a)(ii) to provide that coverage limit of $300,000 is applicable to claims arising under policies of insurers determined to be insolvent prior to October 1, 2007, and that coverage limit of $400,000 is applicable to claims arising under policies of insurers determined to be insolvent on or after October 1, 2007.

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