UNOFFICIAL COPY 23 RS BR 1017
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AN ACT relating to the Kentucky Insurance Guaranty Association Act. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 304.36-030 is amended to read as follows: 3
(1) As used in this section, "ocean marine insurance" includes: 4
(a) Any form of insurance, regardless of name, label, or marketing designation 5
of the insurance policy, that insures against maritime perils or risks and 6
other related perils or risks that are usually insured against by traditional 7
marine insurance, such as hull and machinery, marine builders risk, and 8
marine protection and indemnity. These perils and risks insured against 9
include without limitation loss, damage, or expense or legal liability of the 10
insured for loss, damage, or expense arising out of or incident to ownership, 11
operation, chartering, maintenance, use, repair, or construction of any 12
vessel, craft, or instrumentality in use in ocean or inland waterways, 13
including liability of the insured for personal injury, illness, or death or for 14
loss or damage to the property of the insured or another person; and 15
(b) That coverage written in accordance with the following: 16
1. The Jones Act, 46 U.S.C. sec. 30104; 17
2. The Longshore and Harbor Workers' Compensation Act, 33 U.S.C. 18
sec. 901 et seq.; and 19
3. Any other similar federal statutory enactment or endorsement or 20
policy affording protection and indemnity coverage. 21
(2) This subtitle shall apply to all kinds of direct insurance, except: 22
(a) Life, annuity, health, or disability; 23
(b) Mortgage guaranty, financial guaranty, or other forms of insurance offering 24
protection against investment risks; 25
(c) Credit insurance, vendors' single interest insurance, or collateral protection 26
insurance or any similar insurance protecting the interests of a creditor arising 27 UNOFFICIAL COPY 23 RS BR 1017
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out of a creditor-debtor transaction; 1
(d) Insurance of warranties or service contracts, including insurance that provides 2
for the repair, replacement, or service of goods or property, indemnification 3
for repair, replacement, or service for the operational or structural failure of 4
the goods or property due to a defect in materials, workmanship, or normal 5
wear and tear, or[ that provides] reimbursement for the liability incurred by 6
the issuer of agreements or service contracts that provide these benefits; 7
(e) Title insurance; 8
(f) Ocean marine insurance; 9
(g) Any transaction or combination of transactions between a person, including 10
affiliates of the person, and an insurer, including affiliates of the insurer, that 11
involves the transfer of investment or credit risk and that is unaccompanied by 12
transfer of insurance risk; or 13
(h) Any insurance provided, written, reinsured, or guaranteed by any government 14
or governmental agencies. 15
(3)[(2)] Notwithstanding subsection (2)[(1)] of this section, this subtitle shall apply to 16
health insurance written by an insolvent insurer if the insurer was not a member 17
of the Kentucky Life and Health Insurance Guaranty Association created under 18
KRS 304.42-060 or a successor association on the date of the order of 19
liquidation[where such insurance is written by a member of the Kentucky 20
Insurance Guaranty Association]. 21
Section 2. KRS 304.36-050 is amended to read as follows: 22
As used in this subtitle, unless the context otherwise requires: 23
(1) "Affiliate" means a person who directly or indirectly, through one (1) or more 24
intermediaries, controls, is controlled by, or is under common control with an 25
insolvent insurer on December 31 of the year immediately preceding the date that 26
the insurer becomes an insolvent insurer; 27 UNOFFICIAL COPY 23 RS BR 1017
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(2) "Association" means the Kentucky Insurance Guaranty Association created under 1
KRS 304.36-060; 2
(3) "Claimant" means any insured making a first-party claim or any person instituting a 3
liability claim, except[provided] that no person who is an affiliate of the insolvent 4
insurer may be a claimant; 5
[(4) "Commissioner" means the commissioner of the Department of Insurance of 6
Kentucky;] 7
(4)[(5)] (a) "Control" means the possession, direct or indirect, of power to direct or 8
cause the direction of the management and policies of a person, whether 9
through the ownership of voting securities, by contract other than a loan 10
contract or a commercial contract for goods or nonmanagement services, or 11
otherwise, unless the power is the result of an official position with or 12
corporate office held by the person. 13
(b) Control shall be presumed to exist if any person, directly or indirectly, owns, 14
controls, holds with the power to vote, or holds proxies representing ten 15
percent (10%) or more of any other person. This presumption may be rebutted 16
by a showing that control does not exist in fact; 17
(5)[(6)] (a) "Covered claim": 18
1. Means an unpaid claim, including a claim[one] for unearned premiums, 19
submitted by a claimant, which arises out,[ of and] is within the 20
coverage, and is subject to the applicable limits of an insurance policy to 21
which this subtitle applies issued by a member[an] insurer, if the 22
member insurer becomes an insolvent insurer after June 16, 1972, and: 23
a.[1.] The claimant or insured is a resident of this state at the time of the 24
insured event, except[provided] that for entities other than an 25
individual, the residence of a claimant, insured, or policyholder is 26
the state in which its principal place of business is located at the 27 UNOFFICIAL COPY 23 RS BR 1017
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time of the insured event; or 1
b.[2.] The claim is a first-party claim for damage to property with a 2
permanent location in this state; and 3
2. Includes the obligations assumed by an assuming insurer from a 4
ceding insurer when the assuming insurer subsequently becomes an 5
insolvent insurer if: 6
a. At the time of the assuming insurer's insolvency, the ceding 7
insurer is no longer admitted to transact business in this state; 8
and 9
b. Both the assuming insurer and the ceding insurer were member 10
insurers at the time the assumption was made. 11
(b) For purposes of paragraph (a) of this subsection: 12
1. "Issued by a member insurer" shall not include an insurance policy 13
issued by a nonmember insurer and later allocated to, transferred to, 14
assumed by, or otherwise made the sole responsibility of a member 15
insurer under a state statute commonly known as a "Division" or an 16
"Insurance Business Transfer" statute; and 17
2. Consortium claims are not separate claims subject to separate 18
coverage limits. 19
(c) "Covered claim" shall not include the following: 20
1. Any amount due any reinsurer, insurer, insurance pool, or underwriting 21
association, as subrogation recoveries or otherwise, including any 22
obligation of an insolvent insurer arising out of a reinsurance 23
contract; 24
2. Any amount sought as a return of premium under any retrospective 25
rating plan or dividends plan; 26
3. Legal expenses for policyholders who were not Kentucky residents on 27 UNOFFICIAL COPY 23 RS BR 1017
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the date of the insured event; 1
4. Legal expenses for policyholders who were Kentucky residents on the 2
date[at the time] of the insured event if the legal expenses exceed the 3
association's statutory cap; 4
5. Any first-party claim by an insured whose net worth exceeds 5
ten[twenty-five] million dollars ($10,000,000[$25,000,000]) on 6
December 31 of the year prior to the year in which the insurer becomes 7
an insolvent insurer.[, provided that] An insured's[insurer's] net worth 8
on that date shall be deemed to include the aggregate net worth of the 9
insured and all of its subsidiaries as calculated on a consolidated basis; 10
6. Any first-party claim by an insured that is an affiliate of an insolvent 11
insurer;[ or] 12
7. Any amount awarded as punitive or exemplary damages; 13
8. An obligation incurred after the expiration date of the insurance 14
policy; 15
9. An obligation incurred after the insurance policy has been replaced by 16
the insured, canceled at the insured's request, or canceled by the 17
receiver or liquidator; 18
10. An obligation to a state or federal government; or 19
11. Any claim for interest; 20
(6)[(7)] "Insolvent insurer" means[: 21
(a) ] an insurer: 22
(a) That was a member insurer[Licensed to transact insurance in this state either] 23
at the time the policy was issued[ or when the insured event occurred]; and 24
(b) Against whom a final order of liquidation, with a finding of insolvency, has 25
been entered by a court of competent jurisdiction in the insurer's[company's] 26
state of domicile[ after June 16, 1972; and 27 UNOFFICIAL COPY 23 RS BR 1017
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(c) With respect to which no order, decree, or finding relating to the solvency of 1
the insurer, whether preliminary or temporary in nature or otherwise has been 2
issued by a court of competent jurisdiction or by any insurance commissioner, 3
insurance office, or department or similar official or body before June 16, 4
1972, or which was in fact insolvent before June 16, 1972, and the de facto 5
insolvency was known by the chief insurance regulatory official of the state of 6
its domicile]; 7
(7) "Insured event," in an occurrence policy and claims-made policy, means the act 8
that gave rise to the claim; 9
(8) (a) "Member insurer" means[: 10
(a) ] any person who: 11
1. Writes any kind of insurance to which this subtitle applies under KRS 12
304.36-030(2), including the exchange of reciprocal or inter-insurance 13
contracts; and 14
2.[(b)] [Any person who ]Is licensed to transact insurance in this state. 15
(b) "Member insurer" shall not include a self-insurer. 16
(c) As used in paragraph (b) of this subsection, "self-insurer": 17
1. Means a person that covers its liability through a qualified individual 18
or group self-insurance program or any other formal program created 19
for the specific purpose of covering liabilities typically covered by 20
insurance; and 21
2. Includes but is not limited to: 22
a. Liability self-insurance groups under Subtitle 48 of KRS Chapter 23
304; 24
b. Workers' compensation self-insured groups under Subtitle 50 of 25
KRS Chapter 304; and 26
c. Self-insurers and self-insured groups under KRS Chapter 342. 27 UNOFFICIAL COPY 23 RS BR 1017
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(d) For purposes of determining a withdrawing member's assessment liability, an 1
insurer shall cease to be a member insurer effective on the day following the 2
termination or expiration of its[his or her] license to transact the kinds of 3
insurance to which this subtitle applies, except that[. However,] the insurer 4
shall remain liable as a member insurer for any and all obligations, including 5
obligations for assessments levied prior to the termination or expiration of the 6
insurer's license and assessments levied after the termination or expiration, 7
that relate to any insurer that became an insolvent insurer prior to the 8
termination or expiration of the insurer's license; and 9
(9) (a) "Net direct written premiums" means direct gross premiums written, or in the 10
case of an insurer organized under KRS Chapter 299, assessments, 11
membership fees, and policy fees levied and collected, in this state, less 12
returns thereon and dividends paid or credited to policyholders on such direct 13
business. 14
(b) "Net direct written premiums" shall[does] not include premiums on contracts 15
between insurers or reinsurers[; 16
(10) "Ocean marine insurance" includes any form of insurance, regardless of name, 17
label, or marketing designation of the insurance policy, that insures against maritime 18
perils or risks and other related perils or risks, that are usually insured against by 19
traditional marine insurance such as hull and machinery, marine builders risk, and marine 20
protection and indemnity. These perils and risks insured against include without 21
limitation loss, damage, or expense or legal liability of the insured for loss, damage, or 22
expense arising out of or incident to ownership, operation, chartering, maintenance, use, 23
repair, or construction of any vessel, craft, or instrumentality in use in ocean or inland 24
waterways, including liability of the insured for personal injury, illness, or death or for 25
loss or damage to the property of the insured or another person. "Ocean marine 26
insurance" includes that coverage written in accordance with the following: 27 UNOFFICIAL COPY 23 RS BR 1017
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(a) The Jones Act (46 U.S.C. sec. 688); 1
(b) The Longshore and Harbor Workers' Compensation Act D (33 U.S.C. secs. 2
901 et seq.); or 3
(c) Any other similar federal statutory enactment, or any endorsement or policy 4
affording protection and indemnity coverage; and 5
(11) "Insured event," in an occurrence policy and claims-made policy, means the 6
act that gave rise to the claim]. 7
Section 3. KRS 304.36-080 is amended to read as follows: 8
(1) The association shall: 9
(a) 1. Be obligated to the extent of the covered claims existing: 10
a. Prior to the order of liquidation and arising within thirty (30) days 11
after the order of liquidation;[, or ] 12
b. Before the policy expiration date if less than thirty (30) days after 13
the order of liquidation;[,] or 14
c. Before the insured replaces the policy or on request, effects 15
cancellation, if the insured does so within thirty (30) days of the 16
order of liquidation. 17
2. The obligation shall be satisfied by paying to the claimant an amount as 18
follows: 19
a.[1.] The full amount of a covered claim for benefits arising from a 20
workers' compensation insurance policy purchased to satisfy the 21
requirements of KRS 342.340; 22
b.[2.] An amount not exceeding ten thousand dollars ($10,000) per 23
policy for a covered claim for the return of unearned premium; 24
c. An amount not exceeding five hundred thousand dollars 25
($500,000) per insured event for all covered claims resulting 26
from that event for benefits arising from a cybersecurity 27 UNOFFICIAL COPY 23 RS BR 1017
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insurance policy; or 1
d.[3.] An amount not exceeding three hundred thousand dollars 2
($300,000) per claimant for all other covered claims; 3
(b) 1. Not be obligated to pay a claimant an amount in excess of the obligation 4
of the insolvent insurer under the policy or coverage from which the 5
claim arises. 6
2. Notwithstanding any other provisions of this subtitle, a covered claim 7
shall not include: 8
a. A claim filed with the association after the earlier of: 9
i. Twelve (12) months after the date of the order of 10
liquidation;[,] or 11
ii. The final date set by the court for the filing of claims against 12
the liquidator or receiver of an insolvent insurer; or[ and 13
shall not include ] 14
b. Any claim filed with the association or a liquidator for protection 15
afforded under the insured's policy for incurred but not reported 16
losses. 17
3. Any obligation of the association to defend an insured shall cease upon 18
the association's payment or tender of an amount equal to the lesser of 19
the association's covered claim obligation limit or the applicable policy 20
limit. 21
4. Notwithstanding any other provisions of this subtitle, except in the case 22
of a claim for benefits under workers' compensation coverage, any 23
obligation of the association to any and all persons shall cease when ten 24
million dollars ($10,000,000) shall have been paid in the aggregate by 25
the association and any one (1) or more associations similar to the 26
association of any other state or states or any property and 27 UNOFFICIAL COPY 23 RS BR 1017
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casualty[property/casualty] security fund that obtains contributions from 1
insurers on a preinsolvency basis to or on behalf of any insured and its 2
affiliates on covered claims or allowed claims arising under the policy 3
or policies of any one (1) insolvent insurer. 4
5. For purposes of this paragraph[section], the term "affiliates[affiliate]" 5
means any[shall mean a] person who directly or indirectly, through one 6
(1) or more intermediaries, controls, is controlled by, or is under 7
common control with another person. 8
6. If the claimant has a covered claim or allowed claim against the 9
association or any associations similar to the association or any property 10
and casualty insurance security fund of another state[states], under the 11
policy or policies of any one (1) insolvent insurer, the association may 12
establish a plan to allocate amounts payable by the association in a 13
manner as the association in its discretion deems equitable; 14
(c) 1. Be deemed the insurer to the extent of its obligation on the covered 15
claims and to that extent shall have all rights, duties, and obligations of 16
the insolvent insurer as if the insurer had not become insolvent, 17
including, but not limited to, the right to pursue and retain salvage and 18
subrogation recoverable on paid covered claim obligations. 19
2. In the case of a covered claim involving obligations assumed by an 20
assuming insurer from a ceding insurer, the association shall: 21
a. Have the right to recover a deposit, bond, or other assets that 22
may have been required to be posted by the ceding insurer to the 23
extent of covered claim payments; and 24
b. Be subrogated to any rights the ceding insurer's policyholders 25
may have against the ceding insurer; 26
(d) 1. Assess insurers amounts necessary to pay the obligations of the 27 UNOFFICIAL COPY 23 RS BR 1017
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association under paragraph (a) of this subsection subsequent to an 1
insolvency, the expenses of handling covered claims subsequent to an 2
insolvency,[ and] the cost of examinations under KRS 304.36-130, and 3
other expenses authorized by this subtitle. 4
2. The assessments of each member insurer shall be in the proportion that 5
the net direct written premiums of the member insurer for the calendar 6
year preceding the assessment bears to the net direct written premiums 7
of all member insurers for the calendar year preceding the assessment. 8
3. Each member insurer shall be notified of the assessment not later than 9
thirty (30) days before it is due. 10
4. No member insurer may be assessed in any year an amount greater than 11
two percent (2%) of that member insurer's net direct written premiums 12
for the calendar year preceding the assessment. 13
5. If the maximum assessment, together with the other assets of the 14
association, does not provide in any one (1) year an amount sufficient to 15
make all necessary payments, the funds available shall be prorated and 16
the unpaid portion shall be paid as soon thereafter as funds become 17
available. 18
6. The association shall pay claims in any order which it may deem 19
reasonable including the payment of claims as such are received from 20
the claimants or in groups or categories of claims. 21
7. The association may exempt or defer, in whole or in part, the assessment 22
of any member insurer, if: 23
a. The assessment would cause the member insurer's financial 24
statement to reflect amounts of capital or surplus less than the 25
minimum amounts required for a certificate of authority by any 26
jurisdiction in which the member insurer is authorized to transact 27 UNOFFICIAL COPY 23 RS BR 1017
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insurance; and[provided, however, that ] 1
b. During the period of deferment, no dividends are[shall be] paid by 2
the member insurer to shareholders or policyholders. 3
8. Deferred assessments shall be paid when the payments[such payment] 4
will not reduce capital and surplus below required minimums, and the[. 5
Such] payments shall be refunded to those companies receiving larger 6
assessments by virtue of the[such] deferment[,] or at the election of any 7
such company, credited against future assessments. 8
9. Each member insurer serving as a servicing facility may set off against 9
any assessment authorized payments made on covered claims and 10
expenses incurred in the payment of such claims by such member 11
insurer; 12
(e) Investigate claims brought against the association and adjust, compromise, 13
settle, and pay covered claims to the extent of the association's obligation and 14
deny all other claims; 15
(f) Notify such persons as the commissioner directs under KRS 304.36-100(2)(a); 16
(g) 1. Handle claims through its employees or through one (1) or more 17
insurers or other persons designated as servicing facilities. 18
2. Designation of a servicing facility is subject to the approval of the 19
commissioner, but the[such] designation may be declined by a member 20
insurer;[ and] 21
(h) Reimburse each servicing facility for obligations of the association paid by 22
the facility and for expenses incurred by the facility while handling claims on 23
behalf of the association; and 24
(i) [Shall ]Pay the other expenses of the association authorized by this subtitle. 25
(2) The association may: 26
(a) Appear in, defend, and appeal any action on a claim brought against the 27 UNOFFICIAL COPY 23 RS BR 1017
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association; 1
(b) Employ or retain such persons as are necessary to handle claims and perform 2
other duties of the association; 3
(c) Borrow funds necessary to effect the purposes of this subtitle in accord with 4
the plan of operation; 5
(d) Sue or be sued; 6
(e) Negotiate and become a party to such contracts as are necessary to carry out 7
the purpose of this subtitle; 8
(f) Perform such other acts as are necessary or proper to effectuate the purpose of 9
this subtitle; and 10
(g) Refund to the member insurers in proportion to the contribution of each 11
member insurer to the association that amount by which the assets of the 12
association exceed the liabilities, if, at the end of any calendar year, the board 13
of directors finds that the assets of the association exceed the liabilities of the 14
association as estimated by the board of directors for the coming year. 15