New Hampshire Insurance Guaranty Association Act

404-H:1 - Title.
This chapter shall be known and may be cited as the New Hampshire Insurance Guaranty Association Act of 2004.
404-H:2 - Purpose.
The purpose of this chapter is to provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to the extent provided in this chapter minimize financial loss to claimants or policyholders because of the insolvency of an insurer, and to permit an association to assess the cost of such protection among insurers.
404-H:3 - Scope.

This chapter shall apply to insurers with orders of liquidation with findings of insolvency that are first entered after the effective date of this chapter and shall apply to all kinds of direct insurance, but shall not be applicable to the following:

I. Life, annuity, health, or disability insurance;

II. Mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment risks;

III. Fidelity or surety bonds, or any other bonding obligations;

IV. Credit insurance, vendors' single interest insurance, or collateral protection insurance or other forms of any similar insurance protecting the interests of a creditor arising out of a creditor-debtor transaction;

V. Insurance of warranties or service contracts including insurance that provides for the repair, replacement, or service of goods or property, indemnification for repair, replacement or service for the operational or structural failure of goods or property due to a defect of materials, workmanship, or normal wear and tear, or provides reimbursement for the liability incurred by the issuer of agreements or service contracts that provide such benefits;

VI. Title insurance;

VII. Ocean marine insurance;

VIII. Any transaction or combination of transactions between a person, including affiliates of such person, and an insurer, including affiliates of such insurer, which involves the transfer of investment or credit risk unaccompanied by transfer of insurance risk; or

IX. Any insurance provided by or guaranteed by government.

404-H:4 - Construction.
This chapter shall be liberally construed to effect the purpose under RSA 404-H:2 which shall constitute an aid and guide to interpretation.
404-H:5 - Definitions.

In this chapter:

I. "Account" means any one of the 3 accounts created by
RSA 404-H:6.

II. "Affiliate" means a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another person.

III. "Affiliate of the insolvent insurer" means a person who directly, or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an insolvent insurer on December 31 of the year preceding the date the insurer becomes an insolvent insurer.

IV. "Association" means the New Hampshire Insurance Guaranty Association created under
RSA 404-H:6.

V. "Authority" means the business finance authority established in
RSA 162-A.

VI. "Claimant" means any insured making a claim or any person instituting a liability claim, including a workers' compensation claim, provided that no person who is an affiliate of the insolvent insurer at the time the policy was issued or at the time of the insured event may be a claimant.

VII. "Commissioner" means the commissioner of insurance of this state.

VIII. "Control" means the possession, direct or indirect, or the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is a result of an official position with or corporate office held by the person. Control shall be presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10 percent or more of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact.

IX.  (a) "Covered claim" means an unpaid claim, including one for unearned premiums submitted by a claimant, which arises out of and is within the coverage and is subject to the applicable limits of an insurance policy to which this chapter applies issued by an insurer, if such insurer after the effective date of this chapter becomes an insolvent insurer, and:

      (1) The claimant or insured is a resident of this state at the time of the insured event; provided that for entities other than an individual, the residence of a claimant or insured is the state in which its principal place of business is located at the time of the insured event; or

      (2) The claim is a first party claim for damage to property with a permanent location in this state.

   (b) "Covered claim" shall not include:

      (1) Any amount awarded as punitive or exemplary damages;

      (2) Any amount sought as a return of premium under any retrospective rating plan; or

      (3) Any claim by or for the benefit of any reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries, reinsurance recoveries, contribution, indemnification or otherwise. No claim for any amount by or for the benefit of any reinsurer, insurer, insurance pool, or underwriting association may be asserted against a person insured under a policy issued by an insolvent insurer other than to the extent such claim exceeds the limitations on the association's obligations set forth in
RSA 404-H:8, I(a)(1)(B) of this chapter.

X. "Insolvent insurer" means an insurer licensed to transact insurance in this state, either at the time the policy was issued or when the insured event occurred, and against whom a final order of liquidation has been entered after the effective date of this chapter with a finding of insolvency by a court of competent jurisdiction in the insurer's state of domicile.

XI. "Member insurer" means any person who:

   (a) Writes any kind of insurance to which this chapter applies under
RSA 404-H:3, including the exchange of reciprocal or inter-insurance contracts; and

   (b) Is licensed to transact insurance in this state, except mutual insurance companies that operate on an assessment plan and require as a condition for granting insurance the signing of a premium deposit note by the insurer, which note is given for the purpose of establishing a limit of liability to assessment, while their total receipts from policyholders is less than $10,000 per year.

XII. "Net direct written premiums" means direct gross premiums written in this state on insurance policies to which this chapter applies, less return premiums thereon and dividends paid or credited to policyholders on such direct business. "Net direct written premiums" does not include premiums on contracts between insurers or reinsurers.

XIII. "Person" means any individual or legal entity, including governmental entities.

404-H:6 - Creation of the Association.

There is created a nonprofit unincorporated legal entity to be known as the New Hampshire Insurance Guaranty Association, that shall be the same association created under RSA 404-B:6. All insurers defined as member insurers in RSA 404-H:5, XI shall 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 RSA 404-H:9 and shall exercise its powers through a board of directors established under RSA 404-H:7. For purposes of administration and assessment, the association shall be divided into 3 separate accounts:

I. The workers' compensation insurance account;

II. The automobile insurance account; and

III. The account of all other insurance to which this chapter applies.

404-H:7 - Board of Directors.
I. The board of directors of the association shall consist of not less than 5 nor more than 9 persons serving terms as established in the plan of operation. The members of the board shall be selected by member insurers subject to the approval of the commissioner. Vacancies on the board shall be filled for the remaining period of the term by a majority vote of the remaining board members subject to the approval of the commissioner. If no members are selected within 60 days after the effective date of this chapter, the commissioner may appoint the initial members of the board of directors.

II. In approving selections to the board, the commissioner shall consider among other things whether all member insurers are fairly represented.

III. Members of the board may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors.
404-H:8 - Powers and Duties of the Association.

I. The association shall:

   (a)  (1) Be obligated to pay covered claims existing prior to the order of liquidation and arising within 30 days after the order of liquidation, or before the policy expiration date if less than 30 days after the order of liquidation, or before the insured replaces the policy or causes its cancellation, if he or she does so within 30 days of the order of liquidation. Such obligation shall be satisfied by paying to the claimant an amount as follows:

         (A) The full amount of a covered claim for benefits under workers' compensation insurance coverage.

         (B) An amount not exceeding $300,000 for other covered claims. Payment by the association of an amount satisfying the obligations of the association to a person instituting a liability claim shall satisfy the association's obligations to pay the insured.

      (2) In no event shall the association be obligated to pay an amount in excess of the obligation of the insolvent insurer under the policy or coverage from which the claim arises.

      (3) Any obligation of the association to defend an insured on a covered claim shall cease upon the association's:

         (A) Payment, by settlement releasing the insured or on a judgment, of an amount equal to the lesser of the association's covered claim obligation limit or the applicable policy limit; or

         (B) Tender of such amount.

      (4) Notwithstanding any other provisions of this chapter, except in the case of a claim for benefits under workers' compensation coverage, a covered claim shall not include a claim filed with the association after the earlier of:

         (A) Thirty six months after the date of the order of liquidation; or

         (B) The final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer and shall not include any claim filed with the association or a liquidator for protection afforded under the insured's policy for incurred-but-not-reported losses.

      (5) If the association determines that there may be more than one claimant having a covered claim against the association under the policy or policies of any one insolvent insurer, the association may establish a plan to allocate amounts payable by the association in such manner as the association in its discretion deems equitable.

   (b) Be deemed the insurer only to the extent of the association's obligation on the covered claims and to such extent, subject to the limitations provided in this chapter, shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent, including but not limited to the right to pursue and retain salvage and subrogation recoverables on paid covered claims obligations. The association shall not be deemed the insolvent insurer for any purpose relating to the issue of whether the association is amenable to the personal jurisdiction of the courts of any jurisdiction.

   (c) Allocate claims paid and expenses incurred among the 3 accounts separately, and assess member insurers separately for each account amounts necessary to pay the obligations of the association under subparagraph I(a) subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, and other expenses authorized by this chapter. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the calendar year preceding the assessment on the kinds of insurance in the 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 the account. Each member insurer shall be notified of the assessment not later than 30 days before it is due. No member insurer may be assessed in any one year on any account an amount greater than 2 percent of that member insurer's net direct written premiums for the calendar year preceding the assessment on the kinds of insurance in the account. If the maximum assessment, together with the other assets of the 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 shall be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. The association shall pay claims in any order that it deems reasonable, including the payment of claims as such are received from the claimants or in groups or categories of claims. 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; provided however 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 required minimums. Such payments shall be refunded to those companies receiving larger assessments by virtue of such deferment, or at the election of any such company, credited against future assessments.

   (d) 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.

   (e) Not be bound by any settlement, release, compromise, waiver or judgment executed or entered within 12 months prior to an order of liquidation and shall have the right to assert all defenses available to the association including, but not limited to, defenses applicable to determining and enforcing its statutory rights and obligations to any such claim. The association shall be bound by any settlement, release, compromise, waiver or judgment executed or entered into more than one year prior to an order of liquidation; provided, however, such claim is a covered claim and such settlement or judgment was not a result of fraud, collusion, default or failure to defend. Further, as to any covered claims arising from a judgment under any decision, verdict or finding based on the default of the insolvent insurer or its failure to defend, the association either on its own behalf or on behalf of an insured may apply to have such judgment, order, decision, verdict or finding set aside by the same court or administrator that made such judgment, order, decision, verdict or finding and shall be permitted to defend such claim on the merits.

   (f) 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 such designation may be declined by a member insurer.

   (g) 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 chapter.

   (h) Notwithstanding any of the powers of the commissioner as liquidator as provided for in
RSA 402-C, the association shall have the final authority with respect to the processing and settlement of covered claims for which it becomes responsible pursuant to this chapter, including authority for the use of records of the insolvent insurer directly related to covered claims. At the conclusion of the association's responsibility with respect to any insolvent insurer, any original records of said insolvent insurer then in the possession of the association shall be turned over to the liquidator for ultimate disposal in accordance with RSA 402-C. The association shall cooperate with any agent to the extent possible in identifying policyholders of the agent and the insolvent insurer.

II. The association may:

   (a) Employ or retain such persons as are necessary to handle claims and perform other duties of the association.

   (b) Borrow funds necessary to effect the purposes of this chapter in accordance with the plan of operation.

   (c) Sue or be sued, including the power and right to petition to intervene as a party before any court that has jurisdiction over an insolvent insurer as defined by this chapter, and in any administrative proceeding if the result of such administrative proceeding might in the future impose obligations on the association should one or more of the insurer parties to the proceeding become insolvent.

   (d) Negotiate and become a party to such contracts as are necessary to carry out the purposes of this chapter.

   (e) Perform such other acts as are necessary or proper to effectuate the purposes of this chapter.

   (f) Refund to the member insurers in proportion to the contribution of each 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 the association in any account exceed the liabilities of that account as estimated by the board of directors for the coming year.

III. In any suit involving the association:

   (a) Except for actions by member insurers aggrieved by final actions or decisions of the association pursuant to
RSA 404-H:9, IV(h) of this chapter, all actions relating to or arising out of this chapter shall be brought in the courts in the state. Such courts shall have exclusive jurisdiction over all actions relating to or arising out of this chapter against the association.

   (b) Exclusive venue in any action by or against the association is the superior court for the county of Merrimack, state of New Hampshire. The association may, at the option of the association, waive such venue as to specific actions.

IV. In the event of an insolvency resulting in covered claims payable by the association in excess of its capacity to pay from assessments collected under
RSA 404-H:8, I(c), the association may borrow funds pursuant to RSA 404-H:8, II(b) from any domestic insurer willing and able to enter into an agreement to provide that funding, or a portion thereof, with the approval of the commissioner.

404-H:9 - Plan of Operation.

I. The association shall submit to the commissioner a plan of operation and any amendments thereto necessary or suitable to assure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments thereto shall become effective upon approval in writing by the commissioner.

II. If the association fails to submit a suitable plan of operation within 90 days following the effective date of this chapter, the commissioner shall, after notice and hearing, adopt and promulgate such reasonable rules as are necessary or advisable to effectuate the provisions of this chapter. Such rules shall continue in force until modified by the commissioner or superseded by a plan submitted by the association and approved by the commissioner.

III. All member insurers shall comply with the plan of operation.

IV. The plan of operation shall:

   (a) Establish the procedures whereby all the powers and duties of the association under
RSA 404-H:8 will be performed.

   (b) Establish procedures for handling assets of the association.

   (c) Establish the method of reimbursing members of the board of directors under
RSA 404-H:7.

   (d) Establish procedures by which claims may be filed with the association.

   (e) Provide that notice of claims to the receiver or liquidator of the insolvent insurer shall be deemed notice to and filing with the association or its agent and a list of such claims shall be periodically submitted to the association or similar organization in another state by the receiver or liquidator.

   (f) Establish regular places and times for meetings of the board of directors.

   (g) Establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors.

   (h) Provide that any member insurer aggrieved by any final action or decision of the association may appeal to the commissioner within 30 days after the action or decision.

   (i) Establish the procedures whereby selections for the board of directors will be submitted to the commissioner.

   (j) Contain additional provisions necessary or proper for the execution of the powers and duties of the association.

V. The plan of operation may provide that any or all powers and duties of the association, except those under
RSA 404-H:8, II(b) and IV are delegated to a corporation, association, or other organization which performs or will perform functions similar to those of this association, or its equivalent, in 2 or more states. Such a corporation, association or organization shall be reimbursed as a servicing facility would be reimbursed and shall be paid for its performance of any other functions of the association. A delegation under this paragraph shall take effect only with the approval of both the board of directors and the commissioner, and may be made only to a corporation, association, or organization which extends protection not substantially less favorable and effective than that provided by this chapter.

404-H:10 - Duties and Powers of the Commissioner.

I. The commissioner shall:

   (a) Forward to the association a copy of any complaint seeking an order of liquidation with a finding of insolvency against a member company at the same time such complaint is filed with a court of competent jurisdiction.

   (b) Notify the association of the existence of an insolvent insurer not later than 3 days after the commissioner receives notice of the determination of the insolvency.

   (c) Upon request of the board of directors, provide the association with a statement of the net direct written premiums of each member insurer.

II. The commissioner may:

   (a) Suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer which fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative, the commissioner may levy a fine on any member insurer which fails to pay an assessment when due. Such fine shall be paid to the association and shall not exceed 5 percent of the unpaid assessment per month, except that no fine shall be less than $100 per month.

   (b) Revoke the designation of any servicing facility if the commissioner finds claims are being handled unsatisfactorily.

III. Any final action or order of the commissioner under this chapter shall be subject to judicial review in a court of competent jurisdiction.

404-H:11 - Effect of Paid Claims.

I. Any person recovering under this chapter shall be deemed to have assigned his or her rights under the policy to the association but shall retain the right to recover from the receiver or liquidator of the insolvent insurer any amount of his or her claim under the coverage of the policy not paid by the association. Every person with a right to recover under this chapter shall cooperate with the association in the handling of the claim and perform all of such person's obligations under the policy to the same extent as such person would have been required to cooperate with the insolvent insurer. The association shall have no cause of action against the insured of the insolvent insurer for any sums it has paid out except such causes of action as the insolvent insurer would have had if such sums had been paid by the insolvent insurer and except as provided in paragraph II. In the case of an insolvent insurer operating on a plan with assessment liability, payments of claims of the association shall not operate to reduce the liability of the insureds to the receiver, liquidator, or statutory successor for unpaid assessments.

II. The association shall have the right to recover from the following persons the amount of any covered claim paid, whether for defense, indemnity, or otherwise, on behalf of such person pursuant to this chapter:

   (a) Any insured whose net worth on December 31 of the year immediately preceding the date the insurer becomes an insolvent insurer exceeds $25 million, provided the insured's net worth shall be deemed to include the net worth of the insured and all of its affiliates on a consolidated basis; and

   (b) Any person who is an affiliate of the insolvent insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under this chapter.

III. The association and any association similar to the association in another state shall be recognized as claimants in the liquidation of an insolvent insurer for any amounts paid by them on covered claim obligations as determined under this chapter or similar laws in other states and shall receive dividends and any other distributions at the priority set forth in
RSA 402-C. The receiver, liquidator, or statutory successor of an insolvent insurer shall be bound by determinations of covered claims eligibility under this chapter and by settlements of claims made by the association or a similar organization in another state and shall grant such claims priority equal to that which the claimant would have been entitled in the absence of this chapter against the assets of the insolvent insurer. The expenses of the association or similar organization in handling claims shall be accorded the same priority as the liquidator's expenses.

IV. The association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association which shall preserve the rights of the association against the assets of the insolvent insurer.

404-H:12 - Exhaustion of Other Coverage.

I. Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer, including but not limited to the provisions of uninsured motorist coverage of any policy, shall be required to exhaust first his or her right under such policy. Any amount payable on a covered claim under this chapter shall be reduced by the amount of any recovery under such insurance policy.

II. Any person having a claim which 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, he or she shall seek recovery first from the association of the location of the property, and if it is a workers' compensation claim, he or she shall seek recovery first from the association of the residence of the claimant. Any amount payable as a covered claim under this chapter shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent.

404-H:13 - Prevention of Insolvencies.

To aid in the detection and prevention of insurer insolvencies:

I. The board of directors may, upon majority vote, make reports and recommendations to the commissioner upon any matter germane to the solvency, liquidation, rehabilitation, or conservation of any member insurer. Such reports and recommendations shall not be considered public documents.

II. The board of directors may, at the conclusion of any insurer insolvency in which the association was obligated to pay covered claims, prepare a report on the history and causes of such insolvency, based on the information available to the association, and submit such report to the commissioner.

III. The board of directors may, upon majority vote, make recommendations to the commissioner on matters generally related to improving or enhancing regulation for solvency.

404-H:14 - Examination of the Association.

The association shall be subject to examination and regulation by the commissioner. The board of directors shall submit, not later than March 30 of each year, a financial report for the preceding calendar year in a form approved by the commissioner.

404-H:15 - Tax Exemption.
The association shall be exempt from payment of all fees and all taxes levied by this state or any of its subdivisions except taxes levied on real or personal property.
404-H:16 - Recognition of Assessments in Rates.
I. The rates and premiums charged for insurance policies to which this chapter applies may include amounts sufficient to recoup a sum equal to the amounts paid to the association by the member insurer less any amounts returned to the member insurer by the association. Such rates may not be deemed excessive because they contain an amount reasonably calculated to recoup assessments paid by the member insurer. Alternatively, the member insurer may recoup assessments by collecting a surcharge on premiums charged for insurance policies to which this chapter applies instead of recouping the assessments through its rates and premiums.

II. The amount of any surcharge may be separately stated on either a billing or policy declaration sent to an insured.

III. Member insurers who collect surcharges in excess of assessments owed for an insolvent insurer shall remit the excess to the association as an additional assessment within 30 days after the association has determined the amount of the excess recoupment and given notice to the member of that amount. The excess shall be applied to reduce future assessment charges in the appropriate accounts.

IV. A member insurer may omit collection of the surcharge from its insureds when the expense of collecting the surcharge would exceed the amount of the surcharge. However, nothing in this section shall relieve the member insurer of its obligation to remit the amount of surcharge otherwise collectible.

V. Amounts recouped through surcharge shall be considered premiums for all purposes, including the computation of gross premium tax.
404-H:17 - Immunity.

There shall be no liability on the part of and no cause of action of any nature shall arise against any member insurer, the association or its agents or employees, the board of directors, or any person serving as a representative of any director, or the commissioner or his or her representatives for any action taken or any failure to act by them in the performance of their powers and duties under this chapter.

404-H:18 - Stay of Proceedings.
All proceedings in which the insolvent insurer is a party or is obligated to defend a party in any court in this state shall, subject to waiver by the association in specific cases, be stayed for 6 months and such additional time thereafter as may be determined by the court from the date the insolvency is determined or an ancillary proceeding is instituted in this state, whichever is later.