Vermont Property and Casualty Insurance Guaranty Association Act

§ 3611. - Scope of subchapter; short title act
This subchapter shall apply to all kinds of direct insurance, except life, title, surety, health, credit, mortgage guaranty, and ocean marine insurance. This subchapter shall be known as the Vermont Property and Casualty Insurance Guaranty Association Act.
§ 3612. - Definitions

As used in this subchapter:

1) "Account" means any one of the three accounts created under section 3613 of this title.

2) "Association" means the Vermont Property and Casualty Insurance Guaranty Association created under section 3613 of this title.

3) "Commissioner" means the commissioner of financial regulation.
 

4) "Covered claim" means an unpaid claim, including a claim for unearned premiums:

A) which is asserted against an insurer which becomes an insolvent insurer after the effective date of this chapter or against the insured of such an insurer; and

B) which arises out of and is in an amount not in excess of the applicable limits of an insurance policy to which this subchapter applies; and

C)(i) where the claimant or insured is a resident of this state at the time of the insured event; or

(ii) where the claim arises from property permanently located in this state; and

D) which does not include a claim for services rendered to or for the insolvent insurer, and

E) which does not include any amount due any reinsurer, insurer, insurance pool or underwriting association; provided, that claims which would be covered claims but for this subdivision may be filed directly with the receiver of the insolvent insurer and shall not be asserted against an insured of the insolvent insurer.

5) "Insolvent insurer" means an insurer, including a cooperative fire insurance corporation existing under the authority of subchapter 2 of chapter 105 of this title:

A) licensed to transact insurance in this state either at the time the policy was issued or when the insured event occurred; and

B) against whom a final order of liquidation has been entered with a finding of insolvency by a court of competent jurisdiction in the insurer's state of domicile.

6) "Member insurer" means any person who:

A) writes any kind of insurance to which this subchapter applies, including the exchange of reciprocal or inter-insurance contracts; and

B) is licensed to transact business in this state.

7) "Net direct written premiums" means direct gross premiums written in this state on insurance policies to which this subchapter 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.

8) "Person" means any individual, corporation, partnership, association or voluntary organization.

§ 3613. - Creation of association
There is created a nonprofit unincorporated legal entity to be known as the Vermont Property and Casualty Insurance Guaranty Association. All insurers defined as member insurers in section 3612(6) of this title shall be and remain members of the association as a condition of their authority to transact business in this state. The association shall perform its functions under a plan of operation established and approved under section 3616 of this title and shall exercise its powers through a board of directors established under section 3614 of this title. For purposes of administration and assessment, the association shall be divided into three separate accounts:

1) the workers' compensation insurance account;

2) the automobile insurance account; and

3) the account for all other insurance to which this subchapter applies.
§ 3614. - Board of directors
a) The board of directors of the association shall consist of not less than five nor more than nine persons, at least three of whom shall be persons who are officers, directors, or employees of insurance companies incorporated under the laws of this state, unless there are fewer than three such companies, in which case there shall be one director for each such company. The directors shall serve 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.

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

c) 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.
§ 3615. - Powers and duties of association

a) The association shall:

1) Be obligated to the extent of the covered claims existing prior to the order of liquidation, 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 the insured does so within 30 days of the determination, but this obligation shall include only that amount of each covered claim which, unless it is a claim arising out of a workers' compensation policy, is less than $500,000.00 and which, if it is a claim for unearned premium, is in excess of $25.00. In no event shall the association be 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, nor for any claim filed with the association after the final date set for the filing of claims against the liquidator or receiver of the insolvent insurer, nor in any event after the expiration of three years from the date of determination of the insolvency of such insurer.

2) Be deemed the insurer to the extent of its obligation 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.

3) Allocate claims paid and expenses incurred among the three accounts and assess member insurers separately for each account those amounts necessary to pay the obligations of the association under subdivision (1) of this subsection subsequent to an insolvency, the expense of handling claims subsequent to an insolvency, and the cost of examinations under section 3620 of this title and other expenses authorized by this subchapter. 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 bears to the net direct written premiums of all member insurers and for the calendar year preceding the assessment. 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 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 determination of insolvency on the kinds of insurance in the account. If the maximum  assessment, together with the other assets of the association, does not provide in any year in any account an amount sufficient to make all necessary payments from that account, the funds available may be pro-rated and the unpaid portion shall be paid as soon thereafter as funds become available. The association shall pay claims in any order which it considers reasonable, including the payment of claims as they 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. While an assessment is deferred, however, the member insurer shall not pay dividends to its shareholders or policyholders. Deferred assessments shall be paid by the insurer when payment will not reduce capital or surplus below required minimums, and the payments shall be either refunded to those members which received larger assessments because of the deferment, or, at the election of the member, credited against future assessments. Each member insurer authorized by the association to act as a servicing facility may set off against any assessment all authorized payments made on covered claims and all expenses incurred in the payment of those claims.

4) 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 such settlements, releases and judgments may be properly contested.

5) Notify such persons as the commissioner directs under section 3617(b)(1) of this title.

6) 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.

7) 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 by this subchapter.

b) The association may:

1) Employ or retain such persons as are necessary to handle claims and perform other duties of the association;

2) Borrow funds necessary to effect the purposes of this subchapter in accord with the plan of operating;

3) Sue or be sued;

4) Negotiate and become a party to such contracts as are necessary to carry out the purpose of this subchapter;

5) Perform such other acts as are necessary or proper to effectuate the purpose of this subchapter;

6) 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.

§ 3616. - Plan of operation
a) 1) 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.

2) If after approval by the commissioner of the plan of operation, the association fails to submit amendments to the plan when necessary or advisable to effectuate the provisions of this subchapter, the commissioner may adopt appropriate rules under chapter 25 of Title 3 which shall continue in force until superseded by amendments submitted by the association to the commissioner and approved by him.

b) All member insurers shall comply with the plan of operation.

c) The plan of operation shall:

1) Establish the procedures whereby all the powers and duties of the association under section 3615 of this title will be performed.

2) Establish procedures for handling assets of the association.

3) Establish the amount and method of reimbursing members of the board of directors under section 3614 of this title.

4) Establish procedures by which claims may be filed with the association and establish acceptable forms of proof of covered claims. Notice of claims to the receiver or liquidator of the insolvent insurer shall be deemed notice to 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.

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

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

7) 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.

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

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

d) The plan of operation may provide that any or all powers and duties of the association, except those under sections 3615(a)(3) and 3615(b)(2) of this title, 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 two 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 subsection 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 subchapter.
§ 3617. - Powers and duties of commissioner
a) The commissioner shall:

1) Notify the association of the existence of an insolvent insurer not later than three days after he or she receives notice of the determination of the insolvency and furnish to the association a copy of any complaint or order which was served on his or her office.

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

b) The commissioner may:

1) Require that the association notify the insureds of the insolvent insurer and any other interested parties of the determination of insolvency and of their rights under this subchapter. Such notification shall be by mail at their last known address, where available, but if sufficient information for notification by mail is not available, notice by publication in a newspaper of general circulation shall be sufficient.

2) 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. The fine shall not exceed five percent of the unpaid assessment per month, except that no fine shall be less than $500.00 per month.

3) Revoke the designation of any servicing facility if he or she claims are being handled unsatisfactorily.

c) Any final action or order of the commissioner under this subchapter shall be subject to judicial review by the superior court for the county in which the aggrieved party resides, or if a corporation, in which the principal office of the corporation is located, or if a nonresident, by the superior court for the county of Washington.
§ 3618. - Effect of paid claims
a) Any person recovering under this subchapter shall be deemed to have assigned his or her rights under the policy to the association to the extent of his or her recovery from the association. Every insured or claimant seeking the protection of this subchapter shall cooperate with the association 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. 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 insured's to the receiver, liquidator, or statutory successor for unpaid assessments.

b) The receiver, liquidator, or statutory successor of an insolvent insurer shall be bound by settlements of covered claims by the association or a similar organization in another state. The court having jurisdiction shall grant such claims priority equal to that which the claimant would have been entitled in the absence of this subchapter 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.

c) The association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by the association, the expenses paid in the handling of paid or contested covered claims, estimates of anticipated claims on the association, and estimates of the expenses of handling those anticipated claims, which shall preserve the rights of the association against the assets of the insolvent insurer.
§ 3619. - Nonduplication of recovery
a) Any person having a claim against an insurer under any provision in an insurance policy other than policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his or her right under such policy. Any amount payable on a covered claim under this subchapter shall be reduced by the amount of any recovery under such insurance policy.

b) Any person having a claim which may be recovered from 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 recovery under this subchapter shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent.
§ 3620. - Prevention of insolvencies
To aid in the detection and prevention of insurer insolvencies:

1) It shall be the duty of the board of directors, upon majority vote, to notify the commissioner of any information indicating any member insurer may be insolvent or in a financial condition hazardous to the policyholders or the public.

2) The board of directors may, upon majority vote, request that the commissioner order an examination of any member insurer which the board in good faith believes may be in a financial condition hazardous to the policyholders or the public. Within 30 days of the receipt of such request, the commissioner shall begin such examination. The examination may be conducted as a National Association of Insurance Commissioners examination or may be conducted by such persons as the commissioner designates. The cost of such examination shall be paid by the association and the examination report shall be treated as are other examination reports. In no event shall such examination report be released to the board of directors prior to its release to the public, but this shall not preclude the commissioner from complying with subdivision (3) of this section. The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner but it shall not be open to public inspection prior to the release of the examination report to the public.

3) It shall be the duty of the commissioner to report to the board of directors when he or she has reasonable cause to believe that any member insurer examined or being examined at the request of the board of directors may be insolvent or in a financial condition hazardous to the policyholders or the public.

4) 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.

5) The board of directors may, upon majority vote, make recommendations to the commissioner for the detection and prevention of insurer insolvencies.

6) The board of directors shall, 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.
§ 3621. - Examination of 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.
§ 3622. - 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.
§ 3623. - Recognition of assessments in rates
The rates and premiums charged for insurance policies to which this subchapter applies shall 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 and such rates shall not be deemed excessive because they contain an amount reasonably calculated to recoup assessments paid by the member insurer.
§ 3624. - 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 the commissioner or his or her representatives for any action taken by them in the performance of their powers and duties under this subchapter.
§ 3625. - Stay of proceedings; reopening of default judgment
All proceedings in which the insolvent insurer is a party or is obligated to defend a party in any court in this state shall be stayed for up to six months and such additional time thereafter as may be determined by the court from the date on which the insolvency is declared or an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by the association of all pending causes of action. 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 an insured, the association either on its own behalf or on behalf of such 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 against such claim on the merits.
§ 3626. - Prohibition against advertising of membership in association
A person who makes, publishes, or circulates, or causes to be made, published or circulated, any statement which uses the existence of the association for the purpose of sales, solicitation or inducement to purchase any form of insurance within the scope of this subchapter shall be subject to an administrative penalty of not more than $500.00 for each violation.