2007 California Insurance Code Article 14.7. California Life And Health Insurance Guarantee Association

CA Codes (ins:1067-1067.18)

1067.  This article shall be known and may be cited as the
California Life and Health Insurance Guarantee Association Act.



1067.01.  (a) The purpose of this article is to protect, subject to
certain limitations, the persons specified in Section 1067.02 against
failure in the performance of contractual obligations, under life
and health insurance policies and annuity contracts specified in
Section 1067.02, because of the impairment or insolvency of the
member insurer that issued the policies or contracts.
   (b) To provide this protection, an association of insurers is
created to pay benefits and to continue coverages as limited herein,
and members of the association are subject to assessment to provide
funds to carry out the purposes of this article.




1067.02.  (a) This article shall provide coverage for the policies
and contracts specified in subdivision (b) to all of the following:
   (1) To persons who, regardless of where they reside (except for
nonresident certificate holders under group policies or contracts),
are the beneficiaries, assignees, or payees of the persons covered
under paragraph (2).
   (2) To persons who are owners of or certificate holders under
those policies or contracts, and who either:
   (A) Are residents of this state.
   (B) Are not residents, but only under all of the following
conditions:
   (i) The insurers that issued the policies or contracts are
domiciled in this state.
   (ii) The insurers never held a license or certificate of authority
in the states in which the persons reside.
   (iii) The states in which the persons reside have associations
similar to the association created by this article.
   (iv) The persons are not eligible for coverage by those
associations.
   (b) (1) This article shall provide coverage to the persons
specified in subdivision (a) for direct, nongroup life, health,
annuity, and supplemental policies or contracts and for certificates
under direct group life, health, annuity, and supplemental policies
and contracts, except as limited by this article.  Annuity contracts
and certificates under group annuity contracts include, but are not
limited to, structured settlement agreements, allocated annuity
contracts, and any immediate or deferred annuity contracts, and
unallocated annuity contracts except those expressly excluded
pursuant to subparagraph (D) of paragraph (2) of this subdivision.
   (2) This article shall not provide coverage for any of the
following:
   (A) Any portion of a policy or contract not guaranteed by the
insurer, or under which the risk is borne by the policyholder or
contractholder.
   (B) Any policy or contract of reinsurance, unless assumption
certificates have been issued.
   (C) Any portion of a policy or contract to the extent that the
rate of interest on which it is based exceeds either or both of the
following:
   (i) The extent to which the rate of interest, averaged over the
period of four years prior to the date on which the association
becomes obligated with respect to the policy or contract, exceeds a
rate of interest determined by subtracting six percentage points from
Moody's Corporate Bond Yield Average averaged for that same
four-year period or for such lesser period if the policy or contract
was issued less than four years before the association became
obligated, not to go below a minimum of 0 percent.
   (ii) The extent to which the rate of interest, on and after the
date on which the association becomes obligated with respect to the
policy or contract, exceeds the rate of interest determined by
subtracting six percentage points from Moody's Corporate Bond Yield
Average as most recently available, not to go below a minimum of 3
percent.
   (D) Guaranteed investment contracts, guaranteed interest
contracts, funding agreements, deposit administration contracts, and
all other unallocated annuity contracts; provided however, coverage
may be provided for unallocated annuity contracts sold (i) by an
insurer as to which an order of liquidation, which contained a
finding of insolvency and which later became final, was entered by a
court of competent jurisdiction in the state of its domicile, after
December 20, 1991, but prior to December 20, 1992, and sold to an
employer or a trustee or other plan fiduciary in connection with a
plan or program of an employer prior to December 20, 1992, for
purposes of providing the employees of the employer with deferred
compensation or pension benefits and (I) the individual employees
have an option to participate or not participate, in whole or in
part, in the contract, and (II) the individual employee contributes
from his or her wages some portion of the funds paid into the plan or
program, or (ii) sold by a mutual insurer as to which an order of
liquidation that contained a finding of insolvency and that later
became final was entered by a court of competent jurisdiction in the
state of its domicile after December 1, 1991, but prior to December
31, 1991, and sold to an employer qualifying as an Internal Revenue
Code Section 501(c)(3) employer or to a trustee or other plan
fiduciary in connection with a plan or program of such an employer
for purposes of providing the employees of the employer with deferred
compensation or pension benefits and (I) the contract was purchased
exclusively with funds of the employer in amounts computed as a
uniform percentage of the compensation of each employee entitled to
participate under the terms of the plan, (II) the contract has a
stated maturity date occurring within 15 days prior to that order of
liquidation, and (III) the employer also maintained at the time of
the insolvency a tax deferred annuity plan or program described in
Section 403(b) of the Internal Revenue Code.
   (E) Any plan or program of an employer, association, or similar
entity to provide life, health, or annuity benefits to its employees
or members to the extent that the plan or program is self-funded or
uninsured, including, but not limited to, benefits payable by an
employer, association, or similar entity under any of the following:

   (i) A multiple employer welfare arrangement as defined in Section
514 of the federal Employee Retirement Income Security Act of 1974,
as amended.
   (ii) A minimum premium group insurance plan.
   (iii) A stop-loss group insurance plan.
   (iv) An administrative services only contract.
   (F) Any portion of a policy or contract to the extent that it
provides dividends or experience rating credits, or provides that any
fees or allowances be paid to any person, including the policyholder
or contractholder, in connection with the service to or
administration of the policy or contract.
   (G) Any policy or contract issued in this state by a member
insurer at a time when it was not licensed or did not have a
certificate of authority to issue the policy or contract in this
state.
   (H) Any annuity issued by a charitable organization that is duly
qualified as such under applicable provisions of the Internal Revenue
Code, and that is not engaged in the business of insurance as its
primary business.
   (c) The benefits for which the association may become liable for
life insurance and annuity policies shall in no event exceed the
lesser of the following:
   (1) Eighty percent of the contractual obligations for each policy
or contract as modified pursuant to subparagraph (C) of paragraph (2)
of subdivision (b), for which the insurer is liable or would have
been liable if it were not an impaired or insolvent insurer.
   (2) (A) With respect to any one life, regardless of the number of
policies or contracts:
   (i) Two hundred fifty thousand dollars (0,000) in life
insurance death benefits, but not more than one hundred thousand
dollars (0,000) in net cash surrender and net cash withdrawal
values for life insurance.
   (ii) One hundred thousand dollars (0,000) in the present value
of annuity benefits, including net cash surrender and net cash
withdrawal values.
   (B) However, in no event shall the association be liable to expend
more than two hundred fifty thousand dollars (0,000) in the
aggregate with respect to any one individual under subparagraph (A).

   (C) With respect to any one owner of multiple policies of
individual life insurance, whether the policyowner is an individual,
firm, corporation, or other legal entity, and whether the persons
insured are officers, employees, or other persons in whose lives the
policyowner has an insurable interest, five million dollars
(,000,000) in benefits regardless of the number of the policies and
contracts held by the owner.
   (d) The health insurance benefits for which the association may
become liable shall in no event exceed the lesser of the following:
   (1) The contractual obligations for which the insurer is liable or
for which the insurer would have been liable if it were not an
impaired or insolvent insurer.
   (2) With respect to any one individual receiving health care
benefits, regardless of the number of policies or contracts, two
hundred thousand dollars (0,000) in health insurance benefits; an
amount that shall increase or decrease based upon changes in the
health care cost component of the consumer price index from January
1, 1991, to the date on which the insurer becomes an insolvent
insurer.
   (e) An unallocated annuity contract that is not covered by the
association may not be offered to an employer, after January 1, 1994,
unless prior to being offered to the employer, or the participation
by the employee, the insurer or agent has disclosed to the employer,
and employee in writing in a conspicuous manner that the contract is
not covered by the association.



1067.03.  This article shall be liberally construed to effect the
purpose under Section 1067.01 which shall constitute an aid and guide
to interpretation.


1067.04.  As used in this article:
   (a) "Account" means any of the three accounts created under
Section 1067.05.
   (b) "Association" means the California Life and Health Insurance
Guarantee Association created pursuant to Section 1067.05.
   (c) "Commissioner" means the Insurance Commissioner.
   (d) "Contractual obligation" means any obligation under a policy
or contract, or certificate under a group policy or contract, or
portion thereof, for which coverage is provided under Section
1067.02.
   (e) "Covered policy" means any policy or contract within the scope
of this article under Section 1067.02.
   (f) "Impaired insurer" means a member insurer that, after October
1, 1990, is not an insolvent insurer, and (1) is deemed by the
commissioner to be potentially unable to fulfill its contractual
obligations or (2) is placed under an order of rehabilitation or
conservation by a court of competent jurisdiction.
   (g) "Health insurance" means the class of insurance described as
disability insurance in Section 106.
   (h) "Insolvent insurer" means a member insurer that, after October
1, 1990, is placed under an order of liquidation by a court of
competent jurisdiction with a finding of insolvency.
   (i) "Member insurer" means any insurer licensed or which holds a
certificate of authority to transact in this state any kind of
insurance for which coverage is provided under Section 1067.02 and
includes any insurer whose license or certificate of authority in
this state may have been suspended, revoked, not renewed, or
voluntarily withdrawn, but does not include any of the following:
   (1) A fraternal benefit society.
   (2) A mandatory state pooling plan.
   (3) A mutual assessment company or any entity that operates on an
assessment basis.
   (4) An insurance exchange.
   (5) A nonprofit hospital service plan.
   (6) A health care service plan.
   (7) A grants and annuities society holding a certificate of
authority under Section 11520.
   (8) Any entity similar to any of the above.
   (j) "Moody's Corporate Bond Yield Average" means the Monthly
Average Corporates as published by Moody's Investors Service, Inc.,
or any successor thereto.
   (k) "Person" means any individual, corporation, partnership,
association, or voluntary organization.
   (l) "Premiums" means amounts received on covered policies or
contracts less premiums, considerations, and deposits returned
thereon, and less dividends and experience credits thereon.
"Premiums" does not include any amounts received for any policies or
contracts or for the portions of any policies or contracts for which
coverage is not provided under subdivision (b) of Section 1067.02
except that assessable premium shall not be reduced on account of
paragraph (2) of subdivision (c) of Section 1067.02 relating to
limitations with respect to any one individual, any one participant,
and any one contractholder; provided that "premiums" shall not
include any premiums in excess of five million dollars (,000,000)
with respect to multiple policies of individual life insurance issued
to any one owner, whether the policyowner is an individual, firm,
corporation, or other legal entity, and whether the persons insured
are officers, employees, or other persons in whose lives the
policyowner has an insurable interest, regardless of the number of
policies held by the owner.
   (m) "Resident" means any person who resides in this state at the
time a member insurer is determined to be an impaired or insolvent
insurer and to whom a contractual obligation is owed. A person may be
a resident of only one state, which in the case of a person other
than a natural person shall be its principal place of business.
   (n) "Supplemental contract" means any agreement entered into for
the distribution of policy or contract proceeds.
   (o) "Unallocated annuity contract" means any annuity contract or
group annuity certificate which is not issued to and owned by an
individual, except to the extent of any annuity benefits guaranteed
to an individual by an insurer under that contract or certificate,
and except to the extent allowed in subparagraph (D) of paragraph (2)
of subdivision (b) of Section 1067.02.


1067.05.  (a) A nonprofit legal entity to be known as the California
Life and Health Insurance Guarantee Association shall exist as a
result of the merger of the Seastrand Health Insurance Guaranty
Association with and into the California Life Insurance Guaranty
Association pursuant to Section 1067.055.  All member insurers 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 the plan of operation established and
approved under Section 1067.09 and shall exercise its powers through
a board of directors established under Section 1067.06.  For purposes
of administration and assessment, the association shall maintain the
following three accounts:
   (1) The life insurance account.
   (2) The annuity account.
   (3) The health insurance account.
   (b) The association shall come under the immediate supervision of
the commissioner and shall be subject to the applicable provisions of
the insurance laws of this state.  Meetings or records of the
association may be opened to the public upon majority vote of the
board of directors of the association.



1067.055.  In order to provide for the merger of the Seastrand
Health Insurance Guaranty Association with and into the California
Life Insurance Guaranty Association, the following shall apply:
   (a) Notwithstanding the repeal of the California Life Insurance
Guaranty Association Act and the Seastrand Health Insurance Guaranty
Association Act, the Seastrand Health Insurance Guaranty Association
shall, effective immediately prior to that repeal, be merged with and
into the California Life Insurance Guaranty Association, which shall
then be known as the California Life and Health Insurance Guarantee
Association.
   (b) Notwithstanding the repeal of the California Life Insurance
Guaranty Association Act and the Seastrand Health Insurance Guaranty
Association Act, but subject to the last sentence of this
subdivision, all of the following shall apply:
   (1) The association shall succeed, without other transfer, to all
the rights, powers, privileges, assets, and property of each of the
California Life Insurance Guaranty Association and the Seastrand
Health Insurance Guaranty Association, which for the purposes of this
section shall be referred collectively as the merging associations.
The association shall be subject to all debts, obligations, and
liabilities of each merging association in the same manner as if the
association had itself incurred them, in each case under the law in
effect prior to the effective date of this article, as those rights,
powers, privileges, obligations, debts, and liabilities may be
amended and restated in this article, including, without limitation,
the extension of coverage with respect to unallocated contracts as
provided in subparagraph (D) of paragraph (2) of subdivision (b) of
Section 1067.02, and in each case with respect to member insurers
that became impaired insurers or insolvent insurers prior to the
effective date of this article and after October 1, 1990.  Without
limiting the generality of the foregoing, the association shall
succeed to (A) all collected, uncollected, or unbilled assessments of
the merging associations, (B) all cash, bank accounts, and accrued
interest of the merging associations, (C) all rights, powers,
privileges, and obligations of the merging associations under any
contracts or commitments of the merging association, (D) all
subrogations, assignments, and creditor rights and interests of the
merging associations, and (E) all rights, powers, privileges, and
obligations of each of the trusts established on December 31, 1993,
by each of the merging associations as settlor.
   (2) All rights of creditors and all liens upon the property of
each of the merging associations shall be preserved unimpaired,
provided that the liens upon property of a merging association shall
be limited to the property affected thereby immediately prior to the
effective date of this article.
   (3) Any action or proceeding pending by or against a merging
association may be prosecuted to judgment, which shall bind the
association, or the association may be proceeded against or be
substituted in its place.
   Notwithstanding the other provisions of this subdivision, all
debts, obligations, and liabilities of a merging association that
were to be paid out of a specified account of the merging association
shall be paid solely out of the assets of that merging association
that were available to that merging association to pay those debts
and liabilities, including, without limitation, collected,
uncollected, or unbilled assessments, and any and all subrogation,
assignment, and creditor rights, or out of assets in the same type of
account of the association.
   (c) Notwithstanding any other provision to the contrary in this
article:
   (1) It is the intent of this section to preserve rights, powers,
privileges, assets, property, debts, obligations, and liabilities of
each of the merging associations, and not to provide contractholders
and policyholders, or their respective payees, beneficiaries, or
assignees, with duplicative rights, powers, privileges, assets, or
property.
   (2) Accordingly, no contractholder and policyholder, and no
contractholder's or policyholder's payee, beneficiary, or assignee,
shall be entitled to (A) a recovery from the association that is
duplicative of a previous recovery from either of the merging
associations, or the trust established by either merging association,
or (B) a recovery from the association on account of a claim against
either of the merging associations where the association is liable
with respect to a claim under the same policy or contract under this
article.


1067.06.  (a) The board of directors of the association shall
consist of not less than nine nor more than 13 member insurers
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.
  To select the initial board of directors, and initially organize
the association, the commissioner shall give notice to all member
insurers of the time and place of the organizational meeting.  In
determining voting rights at the organizational meeting each member
insurer shall be entitled to one vote in person or by proxy.  If the
board of directors is not selected within 60 days after notice of the
organizational meeting, the commissioner may appoint the initial
members.
   (b) In approving selections or in appointing members 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, but members of the board shall not otherwise be
compensated by the association for their services.




1067.07.  (a) If a member insurer is an impaired domestic insurer,
the association may, in its discretion, and subject to any conditions
imposed by the association that do not impair the contractual
obligations of the impaired insurer, that are approved by the
commissioner, and that are, except in cases of court-ordered
conservation or rehabilitation, also approved by the impaired
insurer, do any of the following:
   (1) Guarantee, assume, or reinsure, or cause to be guaranteed,
assumed, or reinsured, any or all of the policies or contracts of the
impaired insurer.
   (2) Provide moneys, pledges, notes, guarantees, or other means
proper to effectuate paragraph (1) and assure payment of the
contractual obligations of the impaired insurer pending action under
paragraph (1).
   (3) Loan money to the impaired insurer.
   (b) (1) If a member insurer is an impaired insurer, whether
domestic, foreign, or alien, and the insurer is not paying claims
timely, then subject to the preconditions specified in paragraph (2),
the association shall, in its discretion, either:
   (A) Take any of the actions specified in subdivision (a), subject
to the conditions therein.
   (B) Provide substitute benefits in lieu of the contractual
obligations of the impaired insurer solely for health claims,
periodic annuity benefit payments, death benefits, supplemental
benefits, and cash withdrawals for policy or contract owners who
petition therefor under claims of emergency or hardship in accordance
with standards proposed by the association and approved by the
commissioner.
   (2) The association shall be subject to the requirements of
paragraph (1) only if subparagraphs (A) and (B) apply:
   (A) The laws of the state of domicile of the impaired member
insurer provide that until all payments of or on account of the
impaired insurer's contractual obligations by all guarantee
associations, along with all expenses thereof and interest on all of
those payments and expenses, shall have been repaid to the guarantee
associations or a plan of repayment by the impaired insurer shall
have been approved by the guarantee associations, all of the
following apply:
   (i) The delinquency, rehabilitation, or conservation proceeding
shall not be dismissed.
   (ii) Neither the impaired insurer nor its assets shall be returned
to the control of its shareholders or private management.
   (iii) It shall not be permitted to solicit or accept new business
or have any suspended or revoked license restored.
   (B) Either clause (i) or (ii) applies:
   (i) The impaired insurer is a domestic insurer, and it has been
placed under an order of conservation or rehabilitation by a court of
competent jurisdiction in this state.
   (ii) The impaired insurer is a foreign or alien insurer, and all
of the following apply:
   (I) It has been prohibited from soliciting or accepting new
business in this state.
   (II) Its certificate of authority has been suspended or revoked in
this state.
   (III) A petition for conservation, rehabilitation, or liquidation
has been filed in a court of competent jurisdiction in its state of
domicile by the commissioner of the state.
   (c) If a member insurer is an insolvent insurer, the association
shall, in its discretion, either do those things described in
paragraph (1) or in paragraph (2):
   (1) (A) Guarantee, assume, or reinsure, or cause to be guaranteed,
assumed or reinsured, the policies or contracts of the insolvent
insurer; or
   (B) Assure payment of the contractual obligations of the insolvent
insurer; and
   (C) Provide those moneys, pledges, guarantees, or other means as
are reasonably necessary to discharge the duties.
   (2) With respect only to life and health insurance policies,
provide benefits and coverages in accordance with subdivision (d).
   (d) When proceeding under subparagraph (B) of paragraph (1) of
subdivision (b), or paragraph (2) of subdivision (c), the association
shall, with respect to only life and health insurance policies:
   (1) Assure payment of benefits for premiums identical to the
premiums and benefits, except for terms of conversion and
renewability, that would have been payable under the policies of the
insolvent insurer, for claims incurred:
   (A) With respect to group life insurance policies, not later than
the earlier of the next renewal date under the policies or contracts
or 45 days, but in no event less than 30 days, after the date on
which the association becomes obligated with respect to the policies.

   (B) With respect to group health insurance policies, individual
health insurance policies and individual life insurance policies, not
later than the earlier of the next renewal date, if any, under the
policies or contracts or one year, but in no event less than 30 days,
from the date on which the association becomes obligated with
respect to the policies.
   (2) Make diligent efforts to provide all known insureds or group
policyholders, with respect to group policies, 30 days notice of the
termination of the benefits provided.
   (3) With respect to individual policies, make available to each
known insured, or owner if other than the insured, and with respect
to an individual formerly insured under a group policy who is not
eligible for replacement group coverage, make available substitute
coverage on an individual basis in accordance with the provisions of
paragraph (4), if the insureds had a right under law or the
terminated policy to convert coverage to individual coverage or to
continue an individual policy in force until a specified age or for a
specified time, during which the insurer had no right unilaterally
to make changes in any provision of the policy or had a right only to
make changes in premium by class.
   (4) (A) In providing the substitute coverage required under
paragraph (3), the association may offer either to reissue the
terminated coverage or to issue an alternative policy and shall
consider obtaining coverage for a medically uninsurable person from
the program established under Part 6.5 (commencing with Section
12700) of Division 2.
   (B) Alternative or reissued policies shall be offered without
requiring evidence of insurability, and shall not provide for any
waiting period or exclusion that would not have applied under the
terminated policy.
   (C) The association may reinsure any alternative or reissued
policy.
   (5) (A) Alternative policies adopted by the association shall be
subject to the approval of the commissioner.  The association may
adopt alternative policies of various types for future issuance
without regard to any particular impairment or insolvency.
   (B) Alternative policies shall contain at least the minimum
statutory provisions required in this state and provide benefits that
shall not be unreasonable in relation to the premium charged.  The
association shall set the premium in accordance with a table of rates
which it shall adopt.  The premium shall reflect the amount of
insurance to be provided and the age and class of risk of each
insured, but shall not reflect any changes in the health of the
insured after the original policy was last underwritten.
   (C) Any alternative policy issued by the association shall provide
coverage of a type similar to that of the policy issued by the
impaired or insolvent insurer, as determined by the association.
   (6) If the association elects to reissue terminated coverage at a
premium rate different from that charged under the terminated policy,
the premium shall be set by the association in accordance with the
amount of insurance provided and the age and class of risk, subject
to approval of the commissioner or by a court of competent
jurisdiction.
   (7) The association's obligations with respect to coverage under
any policy of the impaired or insolvent insurer or under any reissued
or alternative policy shall cease on the date that coverage or
policy is replaced by another similar policy by the policyholder, the
insured, or the association.
   (e) When proceeding under subparagraph (B) of paragraph (1) of
subdivision (b) or under subdivision (c) with respect to any policy
or contract carrying guaranteed minimum interest rates, the
association shall assure the payment or crediting of a rate of
interest consistent with subparagraph (C) of paragraph (2) of
subdivision (b) of Section 1067.02.
   (f) Nonpayment of premiums within 31 days after the date required
under the terms of any guaranteed, assumed, alternative, or reissued
policy or contract or substitute coverage shall terminate the
association's obligations under the policy or coverage under this
article with respect to that policy or coverage, except with respect
to any claims incurred or any net cash surrender value which may be
due in accordance with the provisions of this article.
   (g) Premiums due for coverage after entry of an order of
liquidation of an insolvent insurer shall belong to and be payable at
the direction of the association, and the association shall be
liable for unearned premiums due to policy or contract owners arising
after the entry of that order.
   (h) The protection provided by this article shall not apply where
any guarantee protection is provided to residents of this state by
the laws of the domiciliary state or jurisdiction of the impaired or
insolvent insurer other than this state.
   (i) In carrying out its duties under subdivisions (b) and (c), the
association may, subject to approval by the court, do either of the
following:
   (1) Impose permanent policy or contract liens in connection with
any guarantee, assumption, or reinsurance agreement, if the
association finds that the amounts which can be assessed under this
article are less than the amounts needed to assure full and prompt
performance of the association's duties under this article, or that
the economic or financial conditions as they affect member insurers
are sufficiently adverse to render the imposition of the permanent
policy or contract liens, to be in the public interest.
   (2) Impose temporary moratoriums or liens on payments of cash
values and policy loans, or any other right to withdraw funds held in
conjunction with policies or contracts, in addition to any
contractual provisions for deferral of cash or policy loan value.
   (j) If the association fails to act within a reasonable period of
time as provided in subparagraph (B) of paragraph (1) of subdivision
(b), and subdivisions (c) and (d), with respect to an impaired or
insolvent insurer, the commissioner shall have the powers and duties
of the association under this article with respect to the impaired or
insolvent insurer.
   (k) The association may render assistance and advice to the
commissioner, upon his or her request, concerning rehabilitation,
payment of claims, continuance of coverage, or the performance of
other contractual obligations of any impaired or insolvent insurer.
   (l) The association shall have standing to appear before any court
in this state with jurisdiction over an impaired or insolvent
insurer concerning which the association is or may become obligated
under this article.  That standing shall extend to all matters
germane to the powers and duties of the association, including, but
not limited to, proposals for reinsuring, modifying, or guaranteeing
the policies or contracts of the impaired or insolvent insurer and
the determination of the policies or contracts and contractual
obligations.  The association shall also have the right to appear or
intervene before a court in another state with jurisdiction over an
impaired or insolvent insurer for which the association is or may
become obligated or with jurisdiction over a third party against whom
the association may have rights through subrogation of the insurer's
policyholders.
   (m) (1) Any person receiving benefits under this article shall be
deemed to have assigned the rights under, and any causes of action
relating to, the covered policy or contract to the association to the
extent of the benefits received because of this article, whether the
benefits are payments of or on account of contractual obligations,
continuation of coverage or provision of substitute or alternative
coverages.  The association may require an assignment to it of those
rights and cause of action by any payee, policy or contract owner,
beneficiary, insured, or annuitant as a condition precedent to the
receipt of any right or benefits conferred by this article upon that
person.
   (2) The subrogation rights of the association under this
subdivision shall have the same priority against the assets of the
impaired or insolvent insurer as that possessed by the person
entitled to receive benefits under this article.
   (3) In addition to paragraphs (1) and (2), the association shall
have all common law rights of subrogation and any other equitable or
legal remedy that would have been available to the impaired or
insolvent insurer or holder of a policy or contract with respect to
the policy or contracts.
   (n) The association may do any of the following:
   (1) Enter into contracts necessary or proper to carry out the
provisions and purposes of this article.
   (2) Sue or be sued, including taking any legal actions necessary
or proper to recover any unpaid assessments under Section 1067.08 and
to settle claims or potential claims against it.
   (3) Borrow money to effect the purposes of this article.  Any
notes or other evidence of indebtedness of the association not in
default shall be legal investments for domestic insurers and may be
carried as admitted assets.
   (4) Employ or retain an executive director and other persons
necessary to handle the financial transactions of the association,
and to perform other functions necessary or proper under this article
provided that the executive director shall be subject to the
approval of the commissioner.
   (5) Take legal action necessary to avoid payment of improper
claims.
   (6) Exercise, for the purposes of this article and to the extent
approved by the commissioner, the powers of a domestic life or health
insurer, but in no case may the association issue insurance policies
or annuity contracts other than those issued to perform its
obligations under this article.
   (o) The association may join an organization of one or more other
state associations of similar purposes, to further the purposes and
administer the powers and duties of the association.
   (p) There shall be no liability on the part of and no cause of
action shall arise against the association or against any transferee
from the association in connection with the transfer by reinsurance
or otherwise of all or any part of an impaired or insolvent insurer's
business by reason of any action taken or any failure to take any
action by the impaired or insolvent insurer at any time.
   (q) With respect to covered policies for which the association
becomes obligated after an entry of an order or liquidation or
rehabilitation, the association may elect to succeed to the rights of
the insolvent insurer arising after the date of the order of
liquidation or rehabilitation under any contract of reinsurance to
which the insolvent insurer was a party, to the extent that the
contract provides coverage for losses occurring after the date of the
order of liquidation or rehabilitation.  As a condition to making
this election, the association must pay all unpaid premiums due under
the contract for coverage relating to periods before and after the
date of the order of liquidation or rehabilitation.



1067.08.  (a) For the purpose of providing the funds necessary to
carry out the powers and duties of the association, the board of
directors shall assess the member insurers, separately for each
account, at the time and for the amounts as the board finds
necessary.  Assessments shall be due not more than 30 days after
prior written notice to the member insurers and shall accrue interest
at the rate of 10 percent per annum on and after the due date.
   (b) There shall be two assessments, as follows:
   (1) Class A assessments shall be made for the purpose of meeting
administrative and legal costs and other expenses and examinations
conducted under the authority of subdivision (e) of Section 1067.11.
Class A assessments may be made whether or not related to a
particular impaired or insolvent insurer.
   (2) Class B assessments shall be made to the extent necessary to
carry out the powers and duties of the association under Section
1067.07 with regard to an impaired or an insolvent insurer.
   (c) (1) The amount of any class A assessment shall be determined
by the board and may be made on a pro rata or non-pro rata basis.  If
pro rata, the board may provide that it be credited against future
class B assessments.  A non-pro rata assessment shall not exceed two
hundred fifty dollars (0) per member insurer in any one calendar
year.  The amount of any class B assessment shall be allocated for
assessment purposes among the accounts pursuant to an allocation
formula that may be based on the premiums or reserves of the impaired
or insolvent insurer or any other standard deemed by the board in
its sole discretion as being fair and reasonable under the
circumstances.
   (2) Class B assessments against member insurers for each account
shall be in the proportion that the premiums received on business in
this state by each assessed member insurer on policies or contracts
covered by each account for the three most recent calendar years for
which information is available preceding the year in which the
insurer became impaired or insolvent, as the case may be, bears to
premiums received on business in this state for those calendar years
by all assessed member insurers.
   (3) Assessments for funds to meet the requirements of the
association with respect to an impaired or insolvent insurer shall
not be made until necessary to implement the purposes of this
article.  Classification of assessments under subdivision (b) and
computation of assessments under this subdivision shall be made with
a reasonable degree of accuracy, recognizing that exact
determinations may not always be possible.
   (d) The association may abate or defer, in whole or in part, the
assessment of a member insurer if, in the opinion of the board,
payment of the assessment would endanger the ability of the member
insurer to fulfill its contractual obligations.  In the event an
assessment against a member insurer is abated, or deferred in whole
or in part, the amount by which that assessment is abated or deferred
may be assessed against the other member insurers in a manner
consistent with the basis for assessments set forth in this section.

   (e) (1) The total of all assessments upon a member insurer for any
account shall not in any one calendar year exceed 1 percent of the
insurer's average premiums received in this state on the policies and
contracts covered by the account during the three calendar years
preceding the year in which the insurer became an impaired or
insolvent insurer.  If the maximum assessment, together with the
other assets of the association in any account, does not provide in
any one year in that account an amount sufficient to carry out the
responsibilities of the association, the necessary additional funds
shall be assessed as soon thereafter as permitted by this article.
   (2) The board may provide in the plan of operation a method of
allocating funds among claims, whether relating to one or more
impaired or insolvent insurers, when the maximum assessment will be
insufficient to cover anticipated claims.
   (f) The board may, by an equitable method as established in the
plan of operation, refund to member insurers, in proportion to the
contribution of each insurer to that account, the amount by which the
assets of the account exceed the amount the board finds is necessary
to carry out during the coming year the obligations of the
association with regard to that account, including assets accruing
from assignment, subrogation, net realized gains, and income from
investments.  A reasonable amount may be retained in any account to
provide funds for the continuing expenses of the association and for
future losses.
   (g) It shall be proper for any member insurer, in determining its
premium rates and policyowner dividends as to life or annuity of
insurance within the scope of this article, to consider the amount
reasonably necessary to meet its assessment obligations under this
article.
   (h) The association shall issue to each insurer paying an
assessment under this article, other than class A assessment, a
certificate of contribution, in a form prescribed by the
commissioner, for the amount of the assessment so paid.  All
outstanding certificates shall be of equal dignity and priority
without reference to amounts or date of issue.  A certificate of
contribution may be shown by the insurer in its financial statement
as an asset in the form and for the amount, if any, and period of
time as the commissioner may approve.
   (i) (1) Subject to the provisions of paragraph (3), the plan of
operation adopted pursuant to Section 1067.09 shall contain
provisions whereby each member insurer is required to recoup over a
reasonable length of time a sum reasonably calculated to recoup the
assessments with respect to the health insurance account paid by the
member insurer under this article by way of a surcharge on premiums
charged for health insurance policies to which this article applies.
Amounts recouped shall not be considered premiums for any other
purpose, including the computation of gross premium tax or agent's
commission.
   (2) Member insurers who collect surcharges in excess of
assessments paid pursuant to this section for an insolvent insurer
shall remit the excess to the association as an additional assessment
within 120 days after the end of the collection period as determined
by the association.  The excess shall be applied to reduce future
health insurance account assessments for that insurer.
   (3) The plan of operation may permit a member insurer to omit the
collection of the surcharge from its insureds when it determines the
amount of the surcharge collectible from each insured would be
unreasonably small in relation to the potential confusion of or
objection by the insureds even if the aggregate surcharges
collectible from all insureds exceeds the expense of collection.
   (j) Any statement of the amount of surcharge required to be
provided by the association shall include a description of, and
purpose for, the California Life and Health Insurance Guarantee
Association, as follows:
   "Companies writing health insurance business in California are
required to participate in the California Life and Health Insurance
Guarantee Association.  If a company writing health insurance becomes
insolvent, the California Life and Health Insurance Guarantee
Association settles unpaid claims and assesses each insurance company
for its fair share."
   "California law requires all companies to surcharge policies to
recover these assessments.  If your policy is surcharged, "CA
Surcharge" with an amount will be displayed on your premium notice."




1067.09.  (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 the commissioner's written approval or unless
he or she has not disapproved it within 30 days.
   (2) If the association fails to submit a suitable plan of
operation within 120 days following the effective date of this
article or if at any time thereafter the association fails to submit
suitable amendments to the plan, the commissioner shall, after notice
and hearing, adopt and promulgate those reasonable rules necessary
or advisable to effectuate the provisions of this article.  The rules
shall continue in force until modified by the commissioner or
superseded by a plan submitted by the association and approved by the
commissioner.
   (b) All member insurers shall comply with the plan of operation.
   (c) The plan of operation shall, in addition to requirements
enumerated elsewhere in this article, do all of the following:
   (1) Establish procedures for handling the assets of the
association.
   (2) Establish the amount and method of reimbursing members of the
board of directors under Section 1067.06.
   (3) Establish regular places and times for meetings including
telephone conference calls of the board of directors.
   (4) Establish procedures for records to be kept of all financial
transactions of the association, its agents, and the board of
directors.
   (5) Establish the procedure whereby selections for the board of
directors will be made and submitted to the commissioner.
   (6) Establish any additional procedures for assessments under
Section 1067.08.
   (7) 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, including its administration, except those
under paragraph (3) of subdivision (n) of Section 1067.07 and
Section 1067.08, 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.  That corporation, association, or organization shall be
reimbursed for any payments made on behalf of the association and
shall be paid for its performance of any function of the association.
  A delegation under this subdivision 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 article.



1067.10.  In addition to the duties and powers enumerated elsewhere
in this article:
   (a) The commissioner shall do all of the following:
   (1) Upon request of the board of directors, provide the
association with a statement of the premiums in this and any other
appropriate states for each member insurer.
   (2) When an impairment is declared and the amount of the
impairment is determined, serve a demand upon the impaired insurer to
make good the impairment within a reasonable time; notice to the
impaired insurer shall constitute notice to its shareholders, if any;
the failure of the insurer to promptly comply with such demand shall
not excuse the association from the performance of its powers and
duties under this article.
   (3) In any liquidation or rehabilitation proceeding involving a
domestic insurer, be appointed as the liquidator or rehabilitator.
   (b) The commissioner may 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 forfeiture on any member insurer which
fails to pay an assessment when due.  The forfeiture shall not exceed
5 percent of the unpaid assessment per month, but no forfeiture
shall be less than one hundred dollars (0) per month.
   (c) Any action of the board of directors or the association may be
appealed to the commissioner by any member insurer if the appeal is
taken within 60 days of the final action being appealed.  If a member
company is appealing an assessment, the amount assessed shall be
paid to the association and available to meet association obligations
during the pendency of an appeal.  If the appeal on the assessment
is upheld, the amount paid in error or excess shall be returned to
the member company.  Any final action or order of the commissioner
shall be subject to judicial review in a court of competent
jurisdiction.
   (d) The liquidator, rehabilitator, or conservator of any impaired
insurer or insolvent insurer may notify all interested persons of the
effect of this article.



1067.11.  To aid in the detection and prevention of insurer
insolvencies or impairments:
   (a) It shall be the duty of the commissioner to do the following:

   (1) To notify the commissioners of all the other states,
territories of the United States, and the District of Columbia when
he or she takes any of the following actions against a member
insurer:
   (A) Revocation of license.
   (B) Suspension of license.
   (C) Makes any formal order that the company restrict its premium
writing, obtain additional contributions to surplus, withdraw from
the state, reinsure all or any part of its business, or increase
capital, surplus, or any other account for the security of
policyholders or creditors.
   The notice shall be mailed to all commissioners within 30 days
following the action taken or the date on which the action occurs.
   (2) To report to the board of directors, the Legislature, and the
Governor when he or she has taken any of the actions set forth in
paragraph (1) or has received a report from any other commissioner
indicating that any action has been taken in another state.  The
report to the board of directors, the Legislature, and the Governor
shall contain all significant details of the action taken on the
report received from another commissioner.
   (3) To report to the board of directors when he or she has
reasonable cause to believe from any examination, whether completed
or in process, of any member company that the company may be an
impaired or insolvent insurer.
   (4) To furnish to the board of directors the NAIC Insurance
Regulatory Information System (IRIS) ratios and listings of companies
not included in the ratios developed by the National Association of
Insurance Commissioners, and the board may use the information
contained therein in carrying out its duties and responsibilities
under this section.  The report and the information contained therein
shall be kept confidential by the board of directors until that time
as it is made public by the commissioner or other lawful authority.

   (b) The commissioner may seek the advice and recommendations of
the board of directors concerning any matter affecting his or her
duties and responsibilities regarding the financial condition of
member insurers and companies seeking admission to transact insurance
business in this state.
   (c) 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 or germane to the solvency of any company seeking to
do an insurance business in this state.  Those reports and
recommendations shall not be considered public documents.
   (d) 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 an impaired or insolvent insurer.
   (e) 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 an impaired or insolvent
insurer.  Within 30 days of the receipt of the request, the
commissioner shall begin the examination.  The examination may be
conducted as a National Association of Insurance Commissioners
examination or may be conducted by persons that the commissioner
designates.  The cost of the examination shall be paid by the
association and the examination report shall be treated as are other
examination reports.  In no event shall the 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 (a).
   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.
   (f) The board of directors may, upon majority vote, make
recommendations to the commissioner for the detection and prevention
of insurer insolvencies.
   (g) 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 to the commissioner containing the
information that it may have in its possession bearing on the history
and causes of the insolvency.  The board shall cooperate with the
boards of directors of guaranty associations in other states in
preparing a report on the history and causes of insolvency of a
particular insurer, and may adopt by reference any report prepared by
the other associations.
   (h) Reports, information, and recommendations from the board to
the commissioner and from the commissioner to the board under this
Section 1067.11 shall be treated as confidential and shall not be
considered public documents except as otherwise specifically provided
in this section or by specific action of the board or commissioner.




1067.12.  (a) Nothing in this article shall be construed to reduce
the liability for unpaid assessments of the insureds of an impaired
or insolvent insurer operating under a plan with assessment
liability.
   (b) Records shall be kept of all negotiations and meetings in
which the association or its representatives are involved to discuss
the activities of the association in carrying out its powers and
duties under Section 1067.07.  Records of the negotiations or
meetings shall be made public only upon the termination of a
liquidation, rehabilitation, or conservation proceeding involving the
impaired or insolvent insurer, upon the termination of the
impairment or insolvency of the insurer, or upon the order of a court
of competent jurisdiction.  Nothing in this subdivision shall limit
the duty of the association to render a report of its activities
under Section 1067.13.
   (c) For the purpose of carrying out its obligations under this
article, the association shall be deemed to be a creditor of the
impaired or insolvent insurer to the extent of assets attributable to
covered policies reduced by any amounts to which the association is
entitled as subrogee pursuant to Section 1067.07.  Assets of the
impaired or insolvent insurer attributable to covered policies shall
be used to continue all covered policies and pay all contractual
obligations of the impaired or insolvent insurer as required by this
article.  Assets attributable to covered policies, as used in this
subdivision, are that proportion of the assets which the reserves
that should have been established for those policies bear to the
reserves that should have been established for all policies of
insurance written by the impaired or insolvent insurer.
   (d) (1) Prior to the termination of any liquidation,
rehabilitation, or conservation proceeding, the court may take into
consideration the contributions of the respective parties, including
the association, the shareholders, and policy owners of the insolvent
insurer, and any other party with a bona fide interest, in making an
equitable distribution of the ownership rights of the insolvent
insurer. In the determination, consideration shall be given to the
welfare of the policyholders of the continuing or successor insurer.

   (2) No distribution to stockholders, if any, of an impaired or
insolvent insurer shall be made until and unless the total amount of
valid claims of the association with interest thereon for funds
expended in carrying out its powers and duties under Section 1067.07
with respect to the insurer have been fully recovered by the
association.
   (e) (1) If an order for liquidation or rehabilitation of an
insurer domiciled in this state has been entered, the receiver
appointed under the order shall have a right to recover on behalf of
the insurer, from any affiliate that controlled it, the amount of
distributions, other than stock dividends paid by the insurer on its
capital stock, made at any time during the five years preceding the
petition for liquidation or rehabilitation subject to the limitations
of paragraphs (2) to (4), inclusive.
   (2) No such distribution shall be recoverable if the insurer shows
that when paid the distribution was lawful and reasonable, and that
the insurer did not know and could not reasonably have known that the
distribution might adversely affect the ability of the insurer to
fulfill its contractual obligations.
   (3) Any person who was an affiliate that controlled the insurer at
the time the distributions were paid shall be liable up to the
amount of distributions he or she received.  Any person who was an
affiliate that controlled the insurer at the time the distributions
were declared, shall be liable up to the amount of distributions he
or she would have received if they had been paid immediately.  If two
or more persons are liable with respect to the same distributions,
they shall be jointly and severally liable.
   (4) The maximum amount recoverable under this subdivision shall be
the amount needed in excess of all other available assets of the
insolvent insurer to pay the contractual obligations of the insolvent
insurer.
   (5) If any person liable under paragraph (3) is insolvent, all its
affiliates that controlled it at the time the distribution was paid,
shall be jointly and severally liable for any resulting deficiency
in the amount recovered from the insolvent affiliate.



1067.13.  The association shall be subject to examination and
regulation by the commissioner.  The board of directors shall submit
to the commissioner, the Governor, and the Legislature each year, not
later than 120 days after the association's fiscal year, a financial
report in a form approved by the commissioner and a report of its
activities during the preceding fiscal year.



1067.14.  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 property.



1067.15.  There shall be no liability on the part of and no cause of
action of any nature shall arise against any member insurer or its
agents or employees, the association or its agents or employees,
members of the board of directors, or the commissioner or his or her
representatives, for any action or omission by them in the
performance of their powers and duties under this article.  The
immunity shall extend to the participation in any organization of one
or more other state associations of similar purposes and to that
organization and its agents or employees.



1067.16.  All proceedings in which the insolvent insurer is a party
in any court in this state shall be stayed not less than 60 days from
the date an order of liquidation, rehabilitation, or conservation is
final, to permit proper legal action by the association on any
matters germane to its powers or duties.  As to judgment under any
decision, order, verdict, or finding based on default the association
may apply to have the judgment set aside by the same court that made
the judgment and shall be permitted to defend against the suit on
the merits.


1067.17.  (a) No person, including an insurer, agent, or affiliate
of an insurer shall make, publish, disseminate, circulate, or place
before the public, or cause directly or indirectly, to be made,
published, disseminated, circulated, or placed before the public, in
any newspaper, magazine, or other publication, or in the form of a
notice, circular, pamphlet, letter, or poster, or over any radio
station or television station, or in any other way, any
advertisement, announcement, or statement, written or oral, which
uses the existence of the California Life and Health Insurance
Guarantee Association for the purpose of sales, solicitation, or
inducement to purchase any form of insurance covered by the
California Life and Health Insurance Guarantee Association Act.
Provided, however, that this section shall not apply to the
California Life and Health Insurance Guarantee Association or any
other entity which does not sell or solicit insurance.
   (b) The association shall prepare a summary document describing
the general purposes and current limitations of the article and
complying with subdivision (c).  This document shall be submitted to
the commissioner for approval.  Sixty days after receiving approval,
no insurer may deliver a policy or contract described in paragraph
(1) of subdivision (b) of Section 1067.02 to a policyholder or
contractholder unless the document is delivered to the policy or
contract holder prior to or at the time of delivery of the policy or
contract except if subdivision (d) applies.  The document should also
be available upon request by the policyholder.  The distribution,
delivery, or contents or interpretation of this document shall not
mean that either the policy or the contract or the holder thereof
would be covered in the event of the impairment or insolvency of a
member insurer.  The description document shall be revised by the
association as amendments to the article may require.  Failure to
receive this document does not give the policyholder, contractholder,
certificate holder, or insured any greater rights than those stated
in this article.
   (c) The document prepared under subdivision (b) shall contain a
clear and conspicuous disclaimer on its face.  The commissioner shall
promulgate a rule establishing the form and content of the
disclaimer.  The disclaimer shall do all of the following:
   (1) State the name and address of the life and health insurance
guarantee association and insurance department.
   (2) Prominently warn the policyholder or contractholder that the
California Life and Health Insurance Guarantee Association may not
cover the policy or, if coverage is available, it will be subject to
substantial limitations and exclusions and conditioned on continued
residence in the state.
   (3) State that the insurer and its agents are prohibited by law
from using the existence of the California Life and Health Insurance
Guarantee Association for the purpose of sales, solicitation, or
inducement to purchase any form of insurance.
   (4) Emphasize that the policyholder or contractholder should not
rely on coverage under the California Life and Health Insurance
Guarantee Association when selecting an insurer.
   (5) Provide other information as directed by the commissioner.
   (d) No insurer or agent may deliver a policy or contract described
in paragraph (1) of subdivision (b) of Section 1067.02, and excluded
under subparagraph (A) of paragraph (2) of subdivision (b) of
Section 1067.02 from coverage under this article unless the insurer
or agent, prior to or at the time of delivery, gives the policyholder
or contractholder a separate written notice which clearly and
conspicuously discloses that the policy or contract is not covered by
the California Life and Health Insurance Guarantee Association.  The
commissioner shall by rule specify the form and content of the
notice.


1067.18.  This article shall not apply to any insurer that was
declared to be insolvent or impaired, or as to which delinquency
proceedings had been commenced, on or before October 1, 1990.