PA 15-171—HB 6868

Insurance and Real Estate Committee

AN ACT CONCERNING THE CONNECTICUT INSURANCE GUARANTY ASSOCIATIONS

SUMMARY: This act makes changes in the laws governing the Connecticut Insurance Guaranty Association (CIGA) and Connecticut Life and Health Insurance Guaranty Association (CLHIGA). CIGA and CLHIGA pay certain insurance claims when an insurer becomes insolvent and cannot meet its obligations (see BACKGROUND). The act:

1. requires CIGA to cover certain claims arising from policies an insolvent insurer acquired through a merger or acquisition and

2. specifies that CIGA payments are triggered upon a final order of liquidation with a finding of insolvency, and CIGA is not responsible for paying certain claims, including those arising from policies issued by surplus lines carriers.

The act also increases the coverage limit for CIGA, from $400,000 to $500,000, for claims arising from policies of insurers placed into liquidation with a finding of insolvency on or after October 1, 2015. By law, CIGA also pays (1) the full amount of certain workers' compensation claims up to the policy limit and (2) one-half of unearned premiums up to $2,000. Workers' compensation claims must generally be filed within two years after the declaration of insolvency.

Under the act, CLHIGA is not responsible for claims arising from Medicare Parts C or D policies providing hospital, medical, prescription drug, or other health care benefits.

The act also makes minor, technical, and conforming changes.

EFFECTIVE DATE: October 1, 2015

CIGA OBLIGATIONS

Covered Claims

The act expands the claims CIGA must cover to include claims from policies that an insurer, who subsequently becomes insolvent, acquired through a merger or acquisition. Under the act, CIGA must cover claims an insurer assumed as a direct obligation:

1. by acquiring another insurer's assets and assuming its liabilities or

2. through an assumption reinsurance transaction (i. e. , where one insurer assumes liability for another insurer's obligations).

By law, (1) a claimant or insured must be a Connecticut resident at the time of the insured event or (2) the claim must be a first party claim for damage to property permanently located in Connecticut. The act specifies that the residence of claimants or insureds other than individuals (i. e. , businesses) is the state where their principal place of business is located at the time of the insured event.

Non-covered Claims

Under existing law, claims from policies issued by an insurer are not covered if the insurer was unlicensed when the policy was issued or the insured event occurred. Under the act, CIGA is also not responsible for claims arising out of a policy that was issued by an insurer that was unlicensed at the time the obligation for the claim was assumed.

The act specifies that CIGA is also not responsible for claims arising from policies originally issued by a:

1. surplus lines carrier (i. e. , an insurer that has not been granted a certificate of authority by the insurance commissioner to transact insurance business in Connecticut and is not domiciled in the state;

2. risk retention group (i. e. , a type of captive insurer or self-insured group organized under state and federal laws); or

3. self-insurer or group self-insurer.

The act also exempts CIGA from obligations an insolvent insurer assumed:

1. after a delinquency proceeding starts that involves either the insolvent or original insurer, unless the claim would have been covered regardless of the insolvent insurer assuming it, or

2. in a transaction in which the original insurer remains separately liable.

Determinations of Insolvency and Final Orders of Liquidation

The act changes the point at which insurers are considered insolvent for purposes of triggering CIGA coverage. Under prior law, an insurer was determined insolvent by a court of competent jurisdiction. Under the act, an insurer must have a final order of liquidation with a finding of insolvency entered against it by a court of competent jurisdiction in the insurer's domiciled state. The act makes corresponding conforming changes.

BACKGROUND

CIGA and CLHIGA

By law, eligible insurers must participate in and pay assessments to CIGA or CLHIGA, as applicable. If an insurance company defaults, the guaranty association pays valid claims of policyholders and other claimants up to the dollar limits of the applicable policy, subject to minimum and maximum limits fixed by state law. CIGA covers various types of policies such as, automobile, property and casualty, and workers' compensation insurance. CLHIGA covers direct, non-group life, health, and annuity policies.

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