CHAPTER 26.1-42.1INSURANCE GUARANTY ASSOCIATION26.1-42.1-01. Scope. This chapter applies to every kind of direct insurance, except:1.Life, annuity, health, or disability insurance;2.Mortgage guaranty, financial guaranty, or other forms of insurance offering<br>protection against investment risks;3.Fidelity or surety bonds or any other bonding obligations;4.Credit insurance, vendors' single interest insurance, collateral protection insurance,<br>or any similar insurance protecting the interests of a creditor arising out of a<br>creditor-debtor transaction;5.Insurance of warranties or service contracts, including insurance that provides for<br>the repair, replacement, or service of goods or property; for indemnification for<br>repair, replacement, or service; for the operational or structural failure of the goods<br>or property due to a defect in materials, workmanship, or normal wear and tear; or<br>for reimbursement for the liability incurred by the issuer of agreements or service<br>contracts that provide these benefits;6.Title insurance;7.Ocean marine insurance;8.Any transaction or combination of transactions between a person, including affiliates<br>of such person, and an insurer, including affiliates of that insurer, which involves the<br>transfer of investment or credit risk unaccompanied by transfer of insurance risk; or9.Any insurance provided by or guaranteed by government.26.1-42.1-02. Definitions. As used in this chapter:1."Affiliate" means a person who directly, or indirectly, through one or more<br>intermediaries, controls, is controlled by, or is under common control with an<br>insolvent insurer on December thirty-first of the year immediately following the date<br>the insurer becomes an insolvent insurer.2."Association" means the North Dakota insurance guaranty association created under<br>section 26.1-42.1-03.3."Claimant" means any insured making a first-party claim or any person instituting a<br>liability claim, provided that no person who is an affiliate of the insolvent insurer may<br>be a claimant.4."Control" means the direct or indirect possession of the power to direct or cause the<br>direction of the management and policies of a person, whether through the<br>ownership of voting securities, by contract other than a commercial contract for<br>goods or nonmanagement services, or otherwise, unless the power is the result of<br>an official position with or corporate office held by the person. Control is presumed<br>to exist if any person directly or indirectly owns, controls, holds with the power to<br>vote, or holds proxies representing at least ten percent of the voting securities of any<br>other person. This presumption may be rebutted by a showing that control does not<br>exist in fact.Page No. 15."Covered claim" means an unpaid claim, including an unpaid claim for unearned<br>premiums, submitted by a claimant, that arises out of and is within the coverage and<br>is subject to the applicable limits of an insurance policy to which this chapter applies,<br>issued by an insurer, if this insurer becomes an insolvent insurer after August 1,<br>1999, and the claimant or insured is a resident of this state at the time of the insured<br>event; provided that for entities other than an individual, the residence of a claimant,<br>insured, or policyholder is the state in which the entity's principal place of business is<br>located at the time of the insured event; or the claim is a first-party claim for damage<br>to property with a permanent location in this state. The term does not include:a.Any amount awarded as punitive or exemplary damages;b.Any amount sought as a return of premium under any retrospective rating plan;c.Any amount due any reinsurer, insurer, insurance pool, or underwriting<br>associationassubrogationrecoveries,asreinsurancerecoveries,ascontribution, as indemnification, or otherwise. A claim under this subdivision for<br>any amount due any reinsurer, insurer, insurance pool, or underwriting<br>association may not be asserted against a person insured under a policy issued<br>by an insolvent insurer other than to the extent the claim exceeds the<br>association obligation limitations set forth in section 26.1-42.1-05;d.Workforce safety and insurance, including any contract indemnifying an<br>employer who pays compensation directly to employees;e.Any first-party claim by an insured whose net worth exceeds ten million dollars<br>on December thirty-first of the year immediately following the date the insurer<br>becomes an insolvent insurer; provided that an insured's net worth on that date<br>is deemed to include the aggregate net worth of the insured and all of the<br>insured's subsidiaries as calculated on a consolidated basis; andf.Any first-party claim by an insured that is an affiliate of the insolvent insurer.6."Insolvent insurer" means an insurer licensed to transact insurance in this state at<br>the time the policy was issued or when the insured event occurred, and against<br>whom a final order of liquidation was entered after August 1, 1999, with a finding of<br>insolvency by a court of competent jurisdiction in the insurer's state of domicile.7."Member insurer" means any person, except a county mutual insurance company,<br>that writes any kind of insurance to which this chapter applies under section<br>26.1-42.1-01, including the exchange of reciprocal or interinsurance contracts and<br>that is licensed to transact insurance in this state. An insurer shall cease to be a<br>member insurer on the day following the termination or expiration of the insurer's<br>license to transact the kinds of insurance to which this chapter applies, however the<br>insurer remains liable as a member insurer for every obligation, including an<br>obligation for assessments levied before the termination or expiration of the insurer's<br>license and assessments levied after the termination or expiration, which relate to<br>any insurer that became an insolvent insurer before the termination or expiration of<br>that insurer's license.8."Net direct written premiums" means direct gross premiums written in this state on<br>insurance policies to which this chapter applies, less return premiums on these<br>policies and dividends paid or credited to policyholders on this direct business. The<br>term does not include premiums on contracts between insurers or reinsurers.26.1-42.1-03.Creation of the association.A nonprofit unincorporated legal entityknown as the North Dakota insurance guaranty association is created. Every insurer defined as<br>a member insurer in section 26.1-42.1-02 shall be and remain a member of the association as a<br>condition of that insurer's authority to transact insurance in this state. The association shallPage No. 2perform association functions under a plan of operation established and approved under section<br>26.1-42.1-05 and shall exercise association powers through a board of directors established<br>under section 26.1-42.1-04.26.1-42.1-04. Board of directors.1.The board of directors of the association consists of a minimum of five and a<br>maximum of nine persons serving terms as established in the plan of operation. The<br>members of the board must be selected by member insurers, subject to the approval<br>of the commissioner. A vacancy on the board must be filled for the remaining period<br>of the unexpired term by a majority vote of the remaining board members, subject to<br>the approval of the commissioner. If the initial board members are not selected<br>within sixty days after August 1, 1999, the commissioner may appoint the initial<br>members of the board.2.In approving selections to the board, the commissioner shall consider at least<br>whether all member insurers are fairly represented.3.Every member of the board may be reimbursed from the assets of the association<br>for expenses incurred by the member in the course of the member's official duties.26.1-42.1-05. Powers and duties of the association.1.The association:a.Shall pay covered claims existing before the order of liquidation and arising<br>within thirty days after the order of liquidation or before the policy expiration<br>date if less than thirty days after the order of liquidation, or before the insured<br>replaces the policy or causes the policy's cancellation, if the insured does so<br>within thirty days of the order of liquidation. The obligation must be satisfied by<br>paying to the claimant an amount as follows:(1)An amount not exceeding ten thousand dollars per policy for a covered<br>claim for the return of unearned premium.(2)An amount not exceeding three hundred thousand dollars per claim for<br>all other covered claims.b.Is not obligated to pay a claimant an amount in excess of the obligation of the<br>insolvent insurer under the policy or coverage from which the claim arises.<br>Notwithstanding any other provision of this chapter, a covered claim does not<br>include a claim filed with the association after the earlier of eighteen months<br>after the date of the order of liquidation or the final date set by the court for the<br>filing of claims against the liquidator or receiver of an insolvent insurer and a<br>claim does not include any claim filed with the association or a liquidator for<br>protection afforded under the insured's policy for incurred, but not reported,<br>losses.Any obligation of the association to defend an insured on a covered claimceases upon the association's payment, by settlement releasing the insured or<br>on a judgment, of an amount equal to the lesser of the association's covered<br>claim obligation limit or the applicable policy limit or upon the association's<br>tender of that amount.Notwithstanding any other provision of this chapter, an obligation of theassociation to any person ceases when ten million dollars is paid in the<br>aggregate by the association and any one or more associations similar to the<br>association of any other state or states or any property and casualty security<br>fund that obtains contributions from insurers on a preinsolvency basis, to or onPage No. 3behalf of any insured and the insured's affiliates on covered claims or allowed<br>claims arising under the policy or policies of any one insolvent insurer. For<br>purposes of this section, the term "affiliate" means a person who, directly or<br>indirectly, through one or more intermediaries, controls, is controlled by, or is<br>under common control with another person. If the association determines that<br>there may be more than one claimant having a covered claim or allowed claim<br>against the association or any associations similar to the association or any<br>property and casualty insurance security fund in other states, under the policy<br>or policies of any one insolvent insurer, the association may establish a plan to<br>allocate amounts payable by the association in any manner the association<br>deems equitable.c.Is deemed the insurer only to the extent of the association's obligation on the<br>covered claims and to that extent, subject to the limitations provided in this<br>chapter, has all rights, duties, and obligations of the insolvent insurer as if the<br>insurer had not become insolvent, including the right to pursue and retain<br>salvage and subrogation recoverable on paid covered claim obligations. The<br>association may not be deemed the insolvent insurer for any purpose relating to<br>the issue of whether the association is amenable to the personal jurisdiction of<br>the courts of any state.d.Shall assess member insurer's amounts necessary to pay the obligations of the<br>association under subdivision a following an insolvency, the expenses of<br>handling covered claims following an insolvency and other expenses authorized<br>by this chapter.The assessments of each member insurer must be in theproportion that the net direct written premiums of the member insurer for the<br>calendar year preceding the assessment bears to the net direct written<br>premiums of all member insurers for the calendar year preceding the<br>assessment. Each member insurer must be notified of the assessment at least<br>thirty days before the assessment is due.A member insurer may not beassessed in any one year an amount greater than two percent of that member<br>insurer's net direct written premiums for the calendar year preceding the<br>assessment. If the maximum assessment, together with the other assets of the<br>association, does not provide in any one year an amount sufficient to make all<br>necessary payments, the funds available must be prorated and the unpaid<br>portion must be paid as soon as funds become available. The association shall<br>pay claims in any order the association determines reasonable, including the<br>payment of claims as the claims are received from the claimants or in groups or<br>categories of claims. The association may exempt or defer, in whole or in part,<br>the assessment of any member insurer, if the assessment would cause the<br>member insurer's financial statement to reflect amounts of capital or surplus<br>less than the minimum amounts required for a certificate of authority by any<br>jurisdiction in which the member insurer is authorized to transact insurance;<br>provided, however, that during the period of deferment, dividends may not be<br>paid to shareholders or policyholders.Deferred assessments must be paidwhen payment will not reduce capital or surplus below required minimums.<br>Deferred assessment payments must be refunded to those companies<br>receiving larger assessments by virtue of this deferment, or at the election of<br>any such company, credited against future assessments.Each memberinsurer may set off against any assessment authorized payments made on<br>covered claims and expenses incurred in the payment of these claims by the<br>member insurer.e.Shallinvestigateclaimsbroughtagainsttheassociationandadjust,compromise, settle, and pay covered claims to the extent of the association's<br>obligation and deny all other claims. The association may review settlements,<br>releases, and judgments to which the insolvent insurer or the insolvent insurer's<br>insureds were parties to determine the extent to which these settlements,<br>releases, and judgments may be properly contested.The association mayPage No. 4appoint and direct legal counsel retained under liability insurance policies for<br>the defense of covered claims.f.Shall handle claims through the association's employees or through one or<br>more insurers or other persons designated as servicing facilities. Designation<br>of a servicing facility is subject to the approval of the commissioner, but this<br>designation may be declined by a member insurer.g.Shall reimburse each servicing facility for obligations of the association paid by<br>the facility and for expenses incurred by the facility while handling claims on<br>behalf of the association and shall pay the other expenses of the association<br>authorized by this chapter.2.The association may:a.Employ or retain persons necessary to handle claims and perform other duties<br>of the association;b.Borrow funds necessary to effect the purposes of this chapter in accordance<br>with the plan of operation;c.Sue or be sued, and this power to sue includes the power and right to intervene<br>as a party before any court in this state which has jurisdiction over an insolvent<br>insurer;d.Negotiate and become a party to contracts that are necessary to carry out the<br>purposes of this chapter;e.Perform acts that are necessary or proper to effectuate the purposes of this<br>chapter; andf.Refund to the member insurers in proportion to the contribution of each<br>member insurer that amount by which the assets of the association exceed the<br>liabilities, if at the end of any calendar year, the board of directors finds that the<br>assets of the association exceed the liabilities for the coming year as estimated<br>by the board.3.Except for actions by member insurers aggrieved by final actions or decisions by the<br>association pursuant to subdivision h of subsection 3 of section 26.1-42.1-06, all<br>claims for relief relating to this chapter against the association must be brought in<br>the courts of this state. These courts have exclusive jurisdiction over all actions<br>relating to this chapter against the association. Exclusive venue in any action by or<br>against the association is in the district courts of this state. The association, at its<br>option, may waive this exclusive venue as to specific actions.26.1-42.1-06. Plan of operation.1.The association shall submit to the commissioner a plan of operation and any<br>amendments to this plan necessary or suitable to assure the fair, reasonable, and<br>equitable administration of the association.The plan of operation and anyamendments become effective upon written approval by the commissioner. If the<br>association fails to submit a suitable plan of operation within ninety days following<br>August 1, 1999, or if at any time after August 1, 1999, the association fails to submit<br>suitable amendments to the plan, the commissioner, after notice and hearing, shall<br>adopt rules as necessary or advisable to implement this chapter.These rulescontinue in force until modified by the commissioner or superseded by a plan<br>submitted by the association and approved by the commissioner.2.All member insurers shall comply with the plan of operation.Page No. 53.The plan of operation must:a.Establish procedures by which all the powers and duties of the association<br>under section 26.1-42.1-05 will be performed.b.Establish procedures for handling assets of the association.c.Establish procedures for the disposition of liquidating dividends or other<br>moneys received from the estate of the insolvent insurer.d.Establish the amount and method of reimbursing members of the board of<br>directors under section 26.1-42.1-04.e.Establish procedures by which claims may be filed with the association, if<br>necessary, and establish acceptable forms of proof of covered claims. Notice<br>of claims to the receiver or liquidator of the insolvent insurer are deemed notice<br>to the association or the association's agent and periodically a list of claims<br>must be submitted to the association or similar organization in another state by<br>the receiver or liquidator.f.Establish regular places and times for meetings of the board of directors.g.Establish procedures for records to be kept of all financial transactions of the<br>association, the association's agents, and the board of directors.h.Provide that any member insurer aggrieved by any final action or decision of<br>the association may appeal to the commissioner within thirty days after the<br>action or decision.i.Establish procedures by which selections for the board of directors will be<br>submitted to the commissioner.j.Contain provisions necessary or proper for the execution of the powers and<br>duties of the association.4.The plan of operation may provide that powers and duties of the association, except<br>those under subdivision d of subsection 1 of section 26.1-42.1-05 and subdivision b<br>of subsection 2 of section 26.1-42.1-05, are delegated to a corporation, association,<br>or other organization that performs or will perform functions similar to those of this<br>association or this association's equivalent in two or more states. This corporation,<br>association, or organization must be reimbursed as a servicing facility would be<br>reimbursed and must be paid for performance of any other functions of the<br>association. A delegation under this subsection takes effect only with the approval<br>of the board of directors and the commissioner, and may be made only to a<br>corporation, association, or organization that extends protection not substantially<br>less favorable and less effective than that provided by this chapter.26.1-42.1-07. Duties and powers of the commissioner.1.The commissioner shall:a.Notify the association of the existence of an insolvent insurer within three days<br>after the commissioner receives notice of the determination of the insolvency.<br>The association is entitled to a copy of any complaint seeking an order of<br>liquidation with a finding of insolvency against a member company at the same<br>time that this complaint is filed with a court of competent jurisdiction.b.Upon request of the board of directors, provide the association with a statement<br>of the net direct written premiums of each member insurer.Page No. 62.The commissioner may:a.Suspend or revoke, after notice and hearing, the certificate of authority to<br>transact insurance in this state of any member insurer that fails to pay an<br>assessment when due or fails to comply with the plan of operation. In the<br>alternative, the commissioner may levy a fine on any member insurer that fails<br>to pay an assessment when due. A fine under this subdivision may not exceed<br>five percent of the unpaid assessment per month, except that a fine may not be<br>less than one hundred dollars per month.b.Revoke the designation of any servicing facility if the commissioner finds claims<br>are being handled unsatisfactorily.26.1-42.1-08. Effect of paid claims.1.Any person recovering under this chapter is deemed to have assigned that person's<br>rights under the policy to the association to the extent of recovery from the<br>association. Every insured or claimant seeking the protection of this chapter shall<br>cooperate with the association to the same extent as that insured or claimant would<br>have been required to cooperate with the insolvent insurer. The association does<br>not have a claim for relief against the insured of the insolvent insurer for any sums<br>the association paid out except for claims for relief the insolvent insurer would have<br>had if the sums had been paid by the insolvent insurer and except as provided in<br>subsection 2.In the case of an insolvent insurer operating on a plan withassessment liability, payments of claims of the association do not reduce the liability<br>of the insureds to the receiver, liquidator, or statutory successor for unpaid<br>assessments.2.The association may recover from the following persons the amount of any covered<br>claim paid on behalf of that person pursuant to this chapter:a.Any insured whose net worth on December thirty-first of the year immediately<br>preceding the date the insurer becomes an insolvent insurer exceeds<br>twenty-five million dollars and whose liability obligations to other persons are<br>satisfied in whole or in part by payments made under this chapter;b.Any person who is an affiliate of the insolvent insurer and whose liability<br>obligations to other persons are satisfied in whole or in part by payments made<br>under this chapter; andc.Any insured who is not a resident of this state at the time of the insured event,<br>except for first-party covered claims for property damage to an insured's<br>property that is permanently located in this state.3.The association and any similar organization in another state are recognized as<br>claimants in the liquidation of an insolvent insurer for any amounts paid by the<br>association or similar organization on covered claims obligations as determined<br>under this chapter or similar laws in other states and receive dividends and any<br>other distributions at the priority set forth in section 26.1-06.1-41.The receiver,liquidator, or statutory successor of an insolvent insurer is bound by determinations<br>of covered claim eligibility under this chapter and by settlements of claims made by<br>the association or a similar organization in another state. The court with jurisdiction<br>shall grant these claims priority equal to that which the claimant would have been<br>entitled in the absence of this chapter against the assets of the insolvent insurer.4.The association shall periodically file with the receiver or liquidator of the insolvent<br>insurer statements of the covered claims paid by the association and estimates of<br>anticipated claims on the association which preserve the rights of the association<br>against the assets of the insolvent insurer.Page No. 726.1-42.1-09. Exhaustion of other coverage.1.Any person with a claim against an insurer, regardless of whether that insurer is a<br>member insurer under any provision in an insurance policy other than a policy of an<br>insolvent insurer which is also a covered claim, is required to exhaust first that<br>person's right under that policy. Any amount payable on a covered claim under this<br>chapter must be reduced by the amount of any recovery under the insurance policy.2.Any person with a claim that may be recovered under more than one insurance<br>guaranty association or equivalent shall seek recovery first from the association of<br>the place of residence of the insured except that if the claim is a first-party claim for<br>damage to property with a permanent location, the person shall seek recovery first<br>from the association of the location of the property. Any recovery under this chapter<br>must be reduced by the amount of recovery from any other insurance guaranty<br>association or equivalent.26.1-42.1-10. Prevention of insolvencies. To aid in the detection and prevention ofinsurer insolvencies:1.The board of directors, upon majority vote, may make recommendations to the<br>commissioner for the detection and prevention of insurer insolvencies.2.The board of directors, upon majority vote, may make recommendations to the<br>commissioner on matters generally related to improving or enhancing regulation for<br>solvency.3.The board of directors, at the conclusion of any domestic insurer insolvency in which<br>the association was obligated to pay covered claims, may prepare a report on the<br>history and causes of the insolvency, based on the information available to the<br>association and submit this report to the commissioner.26.1-42.1-11.Examination of the association.The association is subject toexamination and regulation by the commissioner. The board of directors shall submit, by March<br>thirty-first of each year, a financial report for the preceding calendar year in a form approved by<br>the commissioner.26.1-42.1-12. Tax exemption. The association is exempt from payment of all fees andall taxes levied by this state or any political subdivision except taxes levied on property.26.1-42.1-13. Recognition of assessments in rates. The rate and premiums chargedfor insurance policies to which this chapter applies must include amounts sufficient to recoup a<br>sum equal to the amounts paid to the association by the member insurer less any amounts<br>returned to the member insurer by the association. These rates may not be determined to be<br>excessive because they contain an amount reasonably calculated to recoup assessments paid<br>by the member insurer.26.1-42.1-14. Immunity. There is no liability on the part of and no claim for relief mayarise against any member insurer, the association or the association's agents or employees, the<br>board of directors, or any person serving as a representative of any director, or the commissioner<br>or the commissioner's representatives for any action taken or any failure to act by these entities<br>in the performance of their powers and duties under this chapter.26.1-42.1-15. Stay of proceedings. All proceedings in which the insolvent insurer is aparty or is obligated to defend a party in any court in this state, subject to waiver by the<br>association in specific cases involving covered claims, must be stayed until the last day fixed by<br>the court for the filing of claims and additional time after this as may be determined by the court<br>from the date the insolvency is determined or an ancillary proceeding is instituted in the state,<br>whichever is later, to permit proper defense by the association of all pending causes of action.<br>As to any covered claims arising from a judgment under any decision, verdict, or finding basedPage No. 8on the default of the insolvent insurer or the insolvent insurer's failure to defend an insured, the<br>association on its own behalf or on behalf of such insured may apply to have the judgment, order,<br>decision, verdict, or finding set aside by the same court or administrator that made the judgment,<br>order, decision, verdict, or finding and may defend the claim on the merits.The liquidator,receiver, or statutory successor of an insolvent insurer covered by this chapter shall permit<br>access by the board or the board's authorized representative to the insolvent insurer's records<br>that are necessary for the board in carrying out the board's functions under this chapter with<br>regard to covered claims. In addition, the liquidator, receiver, or statutory successor shall provide<br>the board or the board's representative with copies of these records upon the request by the<br>board and at the expense of the board.Page No. 9Document Outlinechapter 26.1-42.1 insurance guaranty association
CHAPTER 26.1-42.1INSURANCE GUARANTY ASSOCIATION26.1-42.1-01. Scope. This chapter applies to every kind of direct insurance, except:1.Life, annuity, health, or disability insurance;2.Mortgage guaranty, financial guaranty, or other forms of insurance offering<br>protection against investment risks;3.Fidelity or surety bonds or any other bonding obligations;4.Credit insurance, vendors' single interest insurance, collateral protection insurance,<br>or any similar insurance protecting the interests of a creditor arising out of a<br>creditor-debtor transaction;5.Insurance of warranties or service contracts, including insurance that provides for<br>the repair, replacement, or service of goods or property; for indemnification for<br>repair, replacement, or service; for the operational or structural failure of the goods<br>or property due to a defect in materials, workmanship, or normal wear and tear; or<br>for reimbursement for the liability incurred by the issuer of agreements or service<br>contracts that provide these benefits;6.Title insurance;7.Ocean marine insurance;8.Any transaction or combination of transactions between a person, including affiliates<br>of such person, and an insurer, including affiliates of that insurer, which involves the<br>transfer of investment or credit risk unaccompanied by transfer of insurance risk; or9.Any insurance provided by or guaranteed by government.26.1-42.1-02. Definitions. As used in this chapter:1."Affiliate" means a person who directly, or indirectly, through one or more<br>intermediaries, controls, is controlled by, or is under common control with an<br>insolvent insurer on December thirty-first of the year immediately following the date<br>the insurer becomes an insolvent insurer.2."Association" means the North Dakota insurance guaranty association created under<br>section 26.1-42.1-03.3."Claimant" means any insured making a first-party claim or any person instituting a<br>liability claim, provided that no person who is an affiliate of the insolvent insurer may<br>be a claimant.4."Control" means the direct or indirect possession of the power to direct or cause the<br>direction of the management and policies of a person, whether through the<br>ownership of voting securities, by contract other than a commercial contract for<br>goods or nonmanagement services, or otherwise, unless the power is the result of<br>an official position with or corporate office held by the person. Control is presumed<br>to exist if any person directly or indirectly owns, controls, holds with the power to<br>vote, or holds proxies representing at least ten percent of the voting securities of any<br>other person. This presumption may be rebutted by a showing that control does not<br>exist in fact.Page No. 15."Covered claim" means an unpaid claim, including an unpaid claim for unearned<br>premiums, submitted by a claimant, that arises out of and is within the coverage and<br>is subject to the applicable limits of an insurance policy to which this chapter applies,<br>issued by an insurer, if this insurer becomes an insolvent insurer after August 1,<br>1999, and the claimant or insured is a resident of this state at the time of the insured<br>event; provided that for entities other than an individual, the residence of a claimant,<br>insured, or policyholder is the state in which the entity's principal place of business is<br>located at the time of the insured event; or the claim is a first-party claim for damage<br>to property with a permanent location in this state. The term does not include:a.Any amount awarded as punitive or exemplary damages;b.Any amount sought as a return of premium under any retrospective rating plan;c.Any amount due any reinsurer, insurer, insurance pool, or underwriting<br>associationassubrogationrecoveries,asreinsurancerecoveries,ascontribution, as indemnification, or otherwise. A claim under this subdivision for<br>any amount due any reinsurer, insurer, insurance pool, or underwriting<br>association may not be asserted against a person insured under a policy issued<br>by an insolvent insurer other than to the extent the claim exceeds the<br>association obligation limitations set forth in section 26.1-42.1-05;d.Workforce safety and insurance, including any contract indemnifying an<br>employer who pays compensation directly to employees;e.Any first-party claim by an insured whose net worth exceeds ten million dollars<br>on December thirty-first of the year immediately following the date the insurer<br>becomes an insolvent insurer; provided that an insured's net worth on that date<br>is deemed to include the aggregate net worth of the insured and all of the<br>insured's subsidiaries as calculated on a consolidated basis; andf.Any first-party claim by an insured that is an affiliate of the insolvent insurer.6."Insolvent insurer" means an insurer licensed to transact insurance in this state at<br>the time the policy was issued or when the insured event occurred, and against<br>whom a final order of liquidation was entered after August 1, 1999, with a finding of<br>insolvency by a court of competent jurisdiction in the insurer's state of domicile.7."Member insurer" means any person, except a county mutual insurance company,<br>that writes any kind of insurance to which this chapter applies under section<br>26.1-42.1-01, including the exchange of reciprocal or interinsurance contracts and<br>that is licensed to transact insurance in this state. An insurer shall cease to be a<br>member insurer on the day following the termination or expiration of the insurer's<br>license to transact the kinds of insurance to which this chapter applies, however the<br>insurer remains liable as a member insurer for every obligation, including an<br>obligation for assessments levied before the termination or expiration of the insurer's<br>license and assessments levied after the termination or expiration, which relate to<br>any insurer that became an insolvent insurer before the termination or expiration of<br>that insurer's license.8."Net direct written premiums" means direct gross premiums written in this state on<br>insurance policies to which this chapter applies, less return premiums on these<br>policies and dividends paid or credited to policyholders on this direct business. The<br>term does not include premiums on contracts between insurers or reinsurers.26.1-42.1-03.Creation of the association.A nonprofit unincorporated legal entityknown as the North Dakota insurance guaranty association is created. Every insurer defined as<br>a member insurer in section 26.1-42.1-02 shall be and remain a member of the association as a<br>condition of that insurer's authority to transact insurance in this state. The association shallPage No. 2perform association functions under a plan of operation established and approved under section<br>26.1-42.1-05 and shall exercise association powers through a board of directors established<br>under section 26.1-42.1-04.26.1-42.1-04. Board of directors.1.The board of directors of the association consists of a minimum of five and a<br>maximum of nine persons serving terms as established in the plan of operation. The<br>members of the board must be selected by member insurers, subject to the approval<br>of the commissioner. A vacancy on the board must be filled for the remaining period<br>of the unexpired term by a majority vote of the remaining board members, subject to<br>the approval of the commissioner. If the initial board members are not selected<br>within sixty days after August 1, 1999, the commissioner may appoint the initial<br>members of the board.2.In approving selections to the board, the commissioner shall consider at least<br>whether all member insurers are fairly represented.3.Every member of the board may be reimbursed from the assets of the association<br>for expenses incurred by the member in the course of the member's official duties.26.1-42.1-05. Powers and duties of the association.1.The association:a.Shall pay covered claims existing before the order of liquidation and arising<br>within thirty days after the order of liquidation or before the policy expiration<br>date if less than thirty days after the order of liquidation, or before the insured<br>replaces the policy or causes the policy's cancellation, if the insured does so<br>within thirty days of the order of liquidation. The obligation must be satisfied by<br>paying to the claimant an amount as follows:(1)An amount not exceeding ten thousand dollars per policy for a covered<br>claim for the return of unearned premium.(2)An amount not exceeding three hundred thousand dollars per claim for<br>all other covered claims.b.Is not obligated to pay a claimant an amount in excess of the obligation of the<br>insolvent insurer under the policy or coverage from which the claim arises.<br>Notwithstanding any other provision of this chapter, a covered claim does not<br>include a claim filed with the association after the earlier of eighteen months<br>after the date of the order of liquidation or the final date set by the court for the<br>filing of claims against the liquidator or receiver of an insolvent insurer and a<br>claim does not include any claim filed with the association or a liquidator for<br>protection afforded under the insured's policy for incurred, but not reported,<br>losses.Any obligation of the association to defend an insured on a covered claimceases upon the association's payment, by settlement releasing the insured or<br>on a judgment, of an amount equal to the lesser of the association's covered<br>claim obligation limit or the applicable policy limit or upon the association's<br>tender of that amount.Notwithstanding any other provision of this chapter, an obligation of theassociation to any person ceases when ten million dollars is paid in the<br>aggregate by the association and any one or more associations similar to the<br>association of any other state or states or any property and casualty security<br>fund that obtains contributions from insurers on a preinsolvency basis, to or onPage No. 3behalf of any insured and the insured's affiliates on covered claims or allowed<br>claims arising under the policy or policies of any one insolvent insurer. For<br>purposes of this section, the term "affiliate" means a person who, directly or<br>indirectly, through one or more intermediaries, controls, is controlled by, or is<br>under common control with another person. If the association determines that<br>there may be more than one claimant having a covered claim or allowed claim<br>against the association or any associations similar to the association or any<br>property and casualty insurance security fund in other states, under the policy<br>or policies of any one insolvent insurer, the association may establish a plan to<br>allocate amounts payable by the association in any manner the association<br>deems equitable.c.Is deemed the insurer only to the extent of the association's obligation on the<br>covered claims and to that extent, subject to the limitations provided in this<br>chapter, has all rights, duties, and obligations of the insolvent insurer as if the<br>insurer had not become insolvent, including the right to pursue and retain<br>salvage and subrogation recoverable on paid covered claim obligations. The<br>association may not be deemed the insolvent insurer for any purpose relating to<br>the issue of whether the association is amenable to the personal jurisdiction of<br>the courts of any state.d.Shall assess member insurer's amounts necessary to pay the obligations of the<br>association under subdivision a following an insolvency, the expenses of<br>handling covered claims following an insolvency and other expenses authorized<br>by this chapter.The assessments of each member insurer must be in theproportion that the net direct written premiums of the member insurer for the<br>calendar year preceding the assessment bears to the net direct written<br>premiums of all member insurers for the calendar year preceding the<br>assessment. Each member insurer must be notified of the assessment at least<br>thirty days before the assessment is due.A member insurer may not beassessed in any one year an amount greater than two percent of that member<br>insurer's net direct written premiums for the calendar year preceding the<br>assessment. If the maximum assessment, together with the other assets of the<br>association, does not provide in any one year an amount sufficient to make all<br>necessary payments, the funds available must be prorated and the unpaid<br>portion must be paid as soon as funds become available. The association shall<br>pay claims in any order the association determines reasonable, including the<br>payment of claims as the claims are received from the claimants or in groups or<br>categories of claims. The association may exempt or defer, in whole or in part,<br>the assessment of any member insurer, if the assessment would cause the<br>member insurer's financial statement to reflect amounts of capital or surplus<br>less than the minimum amounts required for a certificate of authority by any<br>jurisdiction in which the member insurer is authorized to transact insurance;<br>provided, however, that during the period of deferment, dividends may not be<br>paid to shareholders or policyholders.Deferred assessments must be paidwhen payment will not reduce capital or surplus below required minimums.<br>Deferred assessment payments must be refunded to those companies<br>receiving larger assessments by virtue of this deferment, or at the election of<br>any such company, credited against future assessments.Each memberinsurer may set off against any assessment authorized payments made on<br>covered claims and expenses incurred in the payment of these claims by the<br>member insurer.e.Shallinvestigateclaimsbroughtagainsttheassociationandadjust,compromise, settle, and pay covered claims to the extent of the association's<br>obligation and deny all other claims. The association may review settlements,<br>releases, and judgments to which the insolvent insurer or the insolvent insurer's<br>insureds were parties to determine the extent to which these settlements,<br>releases, and judgments may be properly contested.The association mayPage No. 4appoint and direct legal counsel retained under liability insurance policies for<br>the defense of covered claims.f.Shall handle claims through the association's employees or through one or<br>more insurers or other persons designated as servicing facilities. Designation<br>of a servicing facility is subject to the approval of the commissioner, but this<br>designation may be declined by a member insurer.g.Shall reimburse each servicing facility for obligations of the association paid by<br>the facility and for expenses incurred by the facility while handling claims on<br>behalf of the association and shall pay the other expenses of the association<br>authorized by this chapter.2.The association may:a.Employ or retain persons necessary to handle claims and perform other duties<br>of the association;b.Borrow funds necessary to effect the purposes of this chapter in accordance<br>with the plan of operation;c.Sue or be sued, and this power to sue includes the power and right to intervene<br>as a party before any court in this state which has jurisdiction over an insolvent<br>insurer;d.Negotiate and become a party to contracts that are necessary to carry out the<br>purposes of this chapter;e.Perform acts that are necessary or proper to effectuate the purposes of this<br>chapter; andf.Refund to the member insurers in proportion to the contribution of each<br>member insurer that amount by which the assets of the association exceed the<br>liabilities, if at the end of any calendar year, the board of directors finds that the<br>assets of the association exceed the liabilities for the coming year as estimated<br>by the board.3.Except for actions by member insurers aggrieved by final actions or decisions by the<br>association pursuant to subdivision h of subsection 3 of section 26.1-42.1-06, all<br>claims for relief relating to this chapter against the association must be brought in<br>the courts of this state. These courts have exclusive jurisdiction over all actions<br>relating to this chapter against the association. Exclusive venue in any action by or<br>against the association is in the district courts of this state. The association, at its<br>option, may waive this exclusive venue as to specific actions.26.1-42.1-06. Plan of operation.1.The association shall submit to the commissioner a plan of operation and any<br>amendments to this plan necessary or suitable to assure the fair, reasonable, and<br>equitable administration of the association.The plan of operation and anyamendments become effective upon written approval by the commissioner. If the<br>association fails to submit a suitable plan of operation within ninety days following<br>August 1, 1999, or if at any time after August 1, 1999, the association fails to submit<br>suitable amendments to the plan, the commissioner, after notice and hearing, shall<br>adopt rules as necessary or advisable to implement this chapter.These rulescontinue in force until modified by the commissioner or superseded by a plan<br>submitted by the association and approved by the commissioner.2.All member insurers shall comply with the plan of operation.Page No. 53.The plan of operation must:a.Establish procedures by which all the powers and duties of the association<br>under section 26.1-42.1-05 will be performed.b.Establish procedures for handling assets of the association.c.Establish procedures for the disposition of liquidating dividends or other<br>moneys received from the estate of the insolvent insurer.d.Establish the amount and method of reimbursing members of the board of<br>directors under section 26.1-42.1-04.e.Establish procedures by which claims may be filed with the association, if<br>necessary, and establish acceptable forms of proof of covered claims. Notice<br>of claims to the receiver or liquidator of the insolvent insurer are deemed notice<br>to the association or the association's agent and periodically a list of claims<br>must be submitted to the association or similar organization in another state by<br>the receiver or liquidator.f.Establish regular places and times for meetings of the board of directors.g.Establish procedures for records to be kept of all financial transactions of the<br>association, the association's agents, and the board of directors.h.Provide that any member insurer aggrieved by any final action or decision of<br>the association may appeal to the commissioner within thirty days after the<br>action or decision.i.Establish procedures by which selections for the board of directors will be<br>submitted to the commissioner.j.Contain provisions necessary or proper for the execution of the powers and<br>duties of the association.4.The plan of operation may provide that powers and duties of the association, except<br>those under subdivision d of subsection 1 of section 26.1-42.1-05 and subdivision b<br>of subsection 2 of section 26.1-42.1-05, are delegated to a corporation, association,<br>or other organization that performs or will perform functions similar to those of this<br>association or this association's equivalent in two or more states. This corporation,<br>association, or organization must be reimbursed as a servicing facility would be<br>reimbursed and must be paid for performance of any other functions of the<br>association. A delegation under this subsection takes effect only with the approval<br>of the board of directors and the commissioner, and may be made only to a<br>corporation, association, or organization that extends protection not substantially<br>less favorable and less effective than that provided by this chapter.26.1-42.1-07. Duties and powers of the commissioner.1.The commissioner shall:a.Notify the association of the existence of an insolvent insurer within three days<br>after the commissioner receives notice of the determination of the insolvency.<br>The association is entitled to a copy of any complaint seeking an order of<br>liquidation with a finding of insolvency against a member company at the same<br>time that this complaint is filed with a court of competent jurisdiction.b.Upon request of the board of directors, provide the association with a statement<br>of the net direct written premiums of each member insurer.Page No. 62.The commissioner may:a.Suspend or revoke, after notice and hearing, the certificate of authority to<br>transact insurance in this state of any member insurer that fails to pay an<br>assessment when due or fails to comply with the plan of operation. In the<br>alternative, the commissioner may levy a fine on any member insurer that fails<br>to pay an assessment when due. A fine under this subdivision may not exceed<br>five percent of the unpaid assessment per month, except that a fine may not be<br>less than one hundred dollars per month.b.Revoke the designation of any servicing facility if the commissioner finds claims<br>are being handled unsatisfactorily.26.1-42.1-08. Effect of paid claims.1.Any person recovering under this chapter is deemed to have assigned that person's<br>rights under the policy to the association to the extent of recovery from the<br>association. Every insured or claimant seeking the protection of this chapter shall<br>cooperate with the association to the same extent as that insured or claimant would<br>have been required to cooperate with the insolvent insurer. The association does<br>not have a claim for relief against the insured of the insolvent insurer for any sums<br>the association paid out except for claims for relief the insolvent insurer would have<br>had if the sums had been paid by the insolvent insurer and except as provided in<br>subsection 2.In the case of an insolvent insurer operating on a plan withassessment liability, payments of claims of the association do not reduce the liability<br>of the insureds to the receiver, liquidator, or statutory successor for unpaid<br>assessments.2.The association may recover from the following persons the amount of any covered<br>claim paid on behalf of that person pursuant to this chapter:a.Any insured whose net worth on December thirty-first of the year immediately<br>preceding the date the insurer becomes an insolvent insurer exceeds<br>twenty-five million dollars and whose liability obligations to other persons are<br>satisfied in whole or in part by payments made under this chapter;b.Any person who is an affiliate of the insolvent insurer and whose liability<br>obligations to other persons are satisfied in whole or in part by payments made<br>under this chapter; andc.Any insured who is not a resident of this state at the time of the insured event,<br>except for first-party covered claims for property damage to an insured's<br>property that is permanently located in this state.3.The association and any similar organization in another state are recognized as<br>claimants in the liquidation of an insolvent insurer for any amounts paid by the<br>association or similar organization on covered claims obligations as determined<br>under this chapter or similar laws in other states and receive dividends and any<br>other distributions at the priority set forth in section 26.1-06.1-41.The receiver,liquidator, or statutory successor of an insolvent insurer is bound by determinations<br>of covered claim eligibility under this chapter and by settlements of claims made by<br>the association or a similar organization in another state. The court with jurisdiction<br>shall grant these claims priority equal to that which the claimant would have been<br>entitled in the absence of this chapter against the assets of the insolvent insurer.4.The association shall periodically file with the receiver or liquidator of the insolvent<br>insurer statements of the covered claims paid by the association and estimates of<br>anticipated claims on the association which preserve the rights of the association<br>against the assets of the insolvent insurer.Page No. 726.1-42.1-09. Exhaustion of other coverage.1.Any person with a claim against an insurer, regardless of whether that insurer is a<br>member insurer under any provision in an insurance policy other than a policy of an<br>insolvent insurer which is also a covered claim, is required to exhaust first that<br>person's right under that policy. Any amount payable on a covered claim under this<br>chapter must be reduced by the amount of any recovery under the insurance policy.2.Any person with a claim that may be recovered under more than one insurance<br>guaranty association or equivalent shall seek recovery first from the association of<br>the place of residence of the insured except that if the claim is a first-party claim for<br>damage to property with a permanent location, the person shall seek recovery first<br>from the association of the location of the property. Any recovery under this chapter<br>must be reduced by the amount of recovery from any other insurance guaranty<br>association or equivalent.26.1-42.1-10. Prevention of insolvencies. To aid in the detection and prevention ofinsurer insolvencies:1.The board of directors, upon majority vote, may make recommendations to the<br>commissioner for the detection and prevention of insurer insolvencies.2.The board of directors, upon majority vote, may make recommendations to the<br>commissioner on matters generally related to improving or enhancing regulation for<br>solvency.3.The board of directors, at the conclusion of any domestic insurer insolvency in which<br>the association was obligated to pay covered claims, may prepare a report on the<br>history and causes of the insolvency, based on the information available to the<br>association and submit this report to the commissioner.26.1-42.1-11.Examination of the association.The association is subject toexamination and regulation by the commissioner. The board of directors shall submit, by March<br>thirty-first of each year, a financial report for the preceding calendar year in a form approved by<br>the commissioner.26.1-42.1-12. Tax exemption. The association is exempt from payment of all fees andall taxes levied by this state or any political subdivision except taxes levied on property.26.1-42.1-13. Recognition of assessments in rates. The rate and premiums chargedfor insurance policies to which this chapter applies must include amounts sufficient to recoup a<br>sum equal to the amounts paid to the association by the member insurer less any amounts<br>returned to the member insurer by the association. These rates may not be determined to be<br>excessive because they contain an amount reasonably calculated to recoup assessments paid<br>by the member insurer.26.1-42.1-14. Immunity. There is no liability on the part of and no claim for relief mayarise against any member insurer, the association or the association's agents or employees, the<br>board of directors, or any person serving as a representative of any director, or the commissioner<br>or the commissioner's representatives for any action taken or any failure to act by these entities<br>in the performance of their powers and duties under this chapter.26.1-42.1-15. Stay of proceedings. All proceedings in which the insolvent insurer is aparty or is obligated to defend a party in any court in this state, subject to waiver by the<br>association in specific cases involving covered claims, must be stayed until the last day fixed by<br>the court for the filing of claims and additional time after this as may be determined by the court<br>from the date the insolvency is determined or an ancillary proceeding is instituted in the state,<br>whichever is later, to permit proper defense by the association of all pending causes of action.<br>As to any covered claims arising from a judgment under any decision, verdict, or finding basedPage No. 8on the default of the insolvent insurer or the insolvent insurer's failure to defend an insured, the<br>association on its own behalf or on behalf of such insured may apply to have the judgment, order,<br>decision, verdict, or finding set aside by the same court or administrator that made the judgment,<br>order, decision, verdict, or finding and may defend the claim on the merits.The liquidator,receiver, or statutory successor of an insolvent insurer covered by this chapter shall permit<br>access by the board or the board's authorized representative to the insolvent insurer's records<br>that are necessary for the board in carrying out the board's functions under this chapter with<br>regard to covered claims. In addition, the liquidator, receiver, or statutory successor shall provide<br>the board or the board's representative with copies of these records upon the request by the<br>board and at the expense of the board.Page No. 9Document Outlinechapter 26.1-42.1 insurance guaranty association
CHAPTER 26.1-42.1INSURANCE GUARANTY ASSOCIATION26.1-42.1-01. Scope. This chapter applies to every kind of direct insurance, except:1.Life, annuity, health, or disability insurance;2.Mortgage guaranty, financial guaranty, or other forms of insurance offering<br>protection against investment risks;3.Fidelity or surety bonds or any other bonding obligations;4.Credit insurance, vendors' single interest insurance, collateral protection insurance,<br>or any similar insurance protecting the interests of a creditor arising out of a<br>creditor-debtor transaction;5.Insurance of warranties or service contracts, including insurance that provides for<br>the repair, replacement, or service of goods or property; for indemnification for<br>repair, replacement, or service; for the operational or structural failure of the goods<br>or property due to a defect in materials, workmanship, or normal wear and tear; or<br>for reimbursement for the liability incurred by the issuer of agreements or service<br>contracts that provide these benefits;6.Title insurance;7.Ocean marine insurance;8.Any transaction or combination of transactions between a person, including affiliates<br>of such person, and an insurer, including affiliates of that insurer, which involves the<br>transfer of investment or credit risk unaccompanied by transfer of insurance risk; or9.Any insurance provided by or guaranteed by government.26.1-42.1-02. Definitions. As used in this chapter:1."Affiliate" means a person who directly, or indirectly, through one or more<br>intermediaries, controls, is controlled by, or is under common control with an<br>insolvent insurer on December thirty-first of the year immediately following the date<br>the insurer becomes an insolvent insurer.2."Association" means the North Dakota insurance guaranty association created under<br>section 26.1-42.1-03.3."Claimant" means any insured making a first-party claim or any person instituting a<br>liability claim, provided that no person who is an affiliate of the insolvent insurer may<br>be a claimant.4."Control" means the direct or indirect possession of the power to direct or cause the<br>direction of the management and policies of a person, whether through the<br>ownership of voting securities, by contract other than a commercial contract for<br>goods or nonmanagement services, or otherwise, unless the power is the result of<br>an official position with or corporate office held by the person. Control is presumed<br>to exist if any person directly or indirectly owns, controls, holds with the power to<br>vote, or holds proxies representing at least ten percent of the voting securities of any<br>other person. This presumption may be rebutted by a showing that control does not<br>exist in fact.Page No. 15."Covered claim" means an unpaid claim, including an unpaid claim for unearned<br>premiums, submitted by a claimant, that arises out of and is within the coverage and<br>is subject to the applicable limits of an insurance policy to which this chapter applies,<br>issued by an insurer, if this insurer becomes an insolvent insurer after August 1,<br>1999, and the claimant or insured is a resident of this state at the time of the insured<br>event; provided that for entities other than an individual, the residence of a claimant,<br>insured, or policyholder is the state in which the entity's principal place of business is<br>located at the time of the insured event; or the claim is a first-party claim for damage<br>to property with a permanent location in this state. The term does not include:a.Any amount awarded as punitive or exemplary damages;b.Any amount sought as a return of premium under any retrospective rating plan;c.Any amount due any reinsurer, insurer, insurance pool, or underwriting<br>associationassubrogationrecoveries,asreinsurancerecoveries,ascontribution, as indemnification, or otherwise. A claim under this subdivision for<br>any amount due any reinsurer, insurer, insurance pool, or underwriting<br>association may not be asserted against a person insured under a policy issued<br>by an insolvent insurer other than to the extent the claim exceeds the<br>association obligation limitations set forth in section 26.1-42.1-05;d.Workforce safety and insurance, including any contract indemnifying an<br>employer who pays compensation directly to employees;e.Any first-party claim by an insured whose net worth exceeds ten million dollars<br>on December thirty-first of the year immediately following the date the insurer<br>becomes an insolvent insurer; provided that an insured's net worth on that date<br>is deemed to include the aggregate net worth of the insured and all of the<br>insured's subsidiaries as calculated on a consolidated basis; andf.Any first-party claim by an insured that is an affiliate of the insolvent insurer.6."Insolvent insurer" means an insurer licensed to transact insurance in this state at<br>the time the policy was issued or when the insured event occurred, and against<br>whom a final order of liquidation was entered after August 1, 1999, with a finding of<br>insolvency by a court of competent jurisdiction in the insurer's state of domicile.7."Member insurer" means any person, except a county mutual insurance company,<br>that writes any kind of insurance to which this chapter applies under section<br>26.1-42.1-01, including the exchange of reciprocal or interinsurance contracts and<br>that is licensed to transact insurance in this state. An insurer shall cease to be a<br>member insurer on the day following the termination or expiration of the insurer's<br>license to transact the kinds of insurance to which this chapter applies, however the<br>insurer remains liable as a member insurer for every obligation, including an<br>obligation for assessments levied before the termination or expiration of the insurer's<br>license and assessments levied after the termination or expiration, which relate to<br>any insurer that became an insolvent insurer before the termination or expiration of<br>that insurer's license.8."Net direct written premiums" means direct gross premiums written in this state on<br>insurance policies to which this chapter applies, less return premiums on these<br>policies and dividends paid or credited to policyholders on this direct business. The<br>term does not include premiums on contracts between insurers or reinsurers.26.1-42.1-03.Creation of the association.A nonprofit unincorporated legal entityknown as the North Dakota insurance guaranty association is created. Every insurer defined as<br>a member insurer in section 26.1-42.1-02 shall be and remain a member of the association as a<br>condition of that insurer's authority to transact insurance in this state. The association shallPage No. 2perform association functions under a plan of operation established and approved under section<br>26.1-42.1-05 and shall exercise association powers through a board of directors established<br>under section 26.1-42.1-04.26.1-42.1-04. Board of directors.1.The board of directors of the association consists of a minimum of five and a<br>maximum of nine persons serving terms as established in the plan of operation. The<br>members of the board must be selected by member insurers, subject to the approval<br>of the commissioner. A vacancy on the board must be filled for the remaining period<br>of the unexpired term by a majority vote of the remaining board members, subject to<br>the approval of the commissioner. If the initial board members are not selected<br>within sixty days after August 1, 1999, the commissioner may appoint the initial<br>members of the board.2.In approving selections to the board, the commissioner shall consider at least<br>whether all member insurers are fairly represented.3.Every member of the board may be reimbursed from the assets of the association<br>for expenses incurred by the member in the course of the member's official duties.26.1-42.1-05. Powers and duties of the association.1.The association:a.Shall pay covered claims existing before the order of liquidation and arising<br>within thirty days after the order of liquidation or before the policy expiration<br>date if less than thirty days after the order of liquidation, or before the insured<br>replaces the policy or causes the policy's cancellation, if the insured does so<br>within thirty days of the order of liquidation. The obligation must be satisfied by<br>paying to the claimant an amount as follows:(1)An amount not exceeding ten thousand dollars per policy for a covered<br>claim for the return of unearned premium.(2)An amount not exceeding three hundred thousand dollars per claim for<br>all other covered claims.b.Is not obligated to pay a claimant an amount in excess of the obligation of the<br>insolvent insurer under the policy or coverage from which the claim arises.<br>Notwithstanding any other provision of this chapter, a covered claim does not<br>include a claim filed with the association after the earlier of eighteen months<br>after the date of the order of liquidation or the final date set by the court for the<br>filing of claims against the liquidator or receiver of an insolvent insurer and a<br>claim does not include any claim filed with the association or a liquidator for<br>protection afforded under the insured's policy for incurred, but not reported,<br>losses.Any obligation of the association to defend an insured on a covered claimceases upon the association's payment, by settlement releasing the insured or<br>on a judgment, of an amount equal to the lesser of the association's covered<br>claim obligation limit or the applicable policy limit or upon the association's<br>tender of that amount.Notwithstanding any other provision of this chapter, an obligation of theassociation to any person ceases when ten million dollars is paid in the<br>aggregate by the association and any one or more associations similar to the<br>association of any other state or states or any property and casualty security<br>fund that obtains contributions from insurers on a preinsolvency basis, to or onPage No. 3behalf of any insured and the insured's affiliates on covered claims or allowed<br>claims arising under the policy or policies of any one insolvent insurer. For<br>purposes of this section, the term "affiliate" means a person who, directly or<br>indirectly, through one or more intermediaries, controls, is controlled by, or is<br>under common control with another person. If the association determines that<br>there may be more than one claimant having a covered claim or allowed claim<br>against the association or any associations similar to the association or any<br>property and casualty insurance security fund in other states, under the policy<br>or policies of any one insolvent insurer, the association may establish a plan to<br>allocate amounts payable by the association in any manner the association<br>deems equitable.c.Is deemed the insurer only to the extent of the association's obligation on the<br>covered claims and to that extent, subject to the limitations provided in this<br>chapter, has all rights, duties, and obligations of the insolvent insurer as if the<br>insurer had not become insolvent, including the right to pursue and retain<br>salvage and subrogation recoverable on paid covered claim obligations. The<br>association may not be deemed the insolvent insurer for any purpose relating to<br>the issue of whether the association is amenable to the personal jurisdiction of<br>the courts of any state.d.Shall assess member insurer's amounts necessary to pay the obligations of the<br>association under subdivision a following an insolvency, the expenses of<br>handling covered claims following an insolvency and other expenses authorized<br>by this chapter.The assessments of each member insurer must be in theproportion that the net direct written premiums of the member insurer for the<br>calendar year preceding the assessment bears to the net direct written<br>premiums of all member insurers for the calendar year preceding the<br>assessment. Each member insurer must be notified of the assessment at least<br>thirty days before the assessment is due.A member insurer may not beassessed in any one year an amount greater than two percent of that member<br>insurer's net direct written premiums for the calendar year preceding the<br>assessment. If the maximum assessment, together with the other assets of the<br>association, does not provide in any one year an amount sufficient to make all<br>necessary payments, the funds available must be prorated and the unpaid<br>portion must be paid as soon as funds become available. The association shall<br>pay claims in any order the association determines reasonable, including the<br>payment of claims as the claims are received from the claimants or in groups or<br>categories of claims. The association may exempt or defer, in whole or in part,<br>the assessment of any member insurer, if the assessment would cause the<br>member insurer's financial statement to reflect amounts of capital or surplus<br>less than the minimum amounts required for a certificate of authority by any<br>jurisdiction in which the member insurer is authorized to transact insurance;<br>provided, however, that during the period of deferment, dividends may not be<br>paid to shareholders or policyholders.Deferred assessments must be paidwhen payment will not reduce capital or surplus below required minimums.<br>Deferred assessment payments must be refunded to those companies<br>receiving larger assessments by virtue of this deferment, or at the election of<br>any such company, credited against future assessments.Each memberinsurer may set off against any assessment authorized payments made on<br>covered claims and expenses incurred in the payment of these claims by the<br>member insurer.e.Shallinvestigateclaimsbroughtagainsttheassociationandadjust,compromise, settle, and pay covered claims to the extent of the association's<br>obligation and deny all other claims. The association may review settlements,<br>releases, and judgments to which the insolvent insurer or the insolvent insurer's<br>insureds were parties to determine the extent to which these settlements,<br>releases, and judgments may be properly contested.The association mayPage No. 4appoint and direct legal counsel retained under liability insurance policies for<br>the defense of covered claims.f.Shall handle claims through the association's employees or through one or<br>more insurers or other persons designated as servicing facilities. Designation<br>of a servicing facility is subject to the approval of the commissioner, but this<br>designation may be declined by a member insurer.g.Shall reimburse each servicing facility for obligations of the association paid by<br>the facility and for expenses incurred by the facility while handling claims on<br>behalf of the association and shall pay the other expenses of the association<br>authorized by this chapter.2.The association may:a.Employ or retain persons necessary to handle claims and perform other duties<br>of the association;b.Borrow funds necessary to effect the purposes of this chapter in accordance<br>with the plan of operation;c.Sue or be sued, and this power to sue includes the power and right to intervene<br>as a party before any court in this state which has jurisdiction over an insolvent<br>insurer;d.Negotiate and become a party to contracts that are necessary to carry out the<br>purposes of this chapter;e.Perform acts that are necessary or proper to effectuate the purposes of this<br>chapter; andf.Refund to the member insurers in proportion to the contribution of each<br>member insurer that amount by which the assets of the association exceed the<br>liabilities, if at the end of any calendar year, the board of directors finds that the<br>assets of the association exceed the liabilities for the coming year as estimated<br>by the board.3.Except for actions by member insurers aggrieved by final actions or decisions by the<br>association pursuant to subdivision h of subsection 3 of section 26.1-42.1-06, all<br>claims for relief relating to this chapter against the association must be brought in<br>the courts of this state. These courts have exclusive jurisdiction over all actions<br>relating to this chapter against the association. Exclusive venue in any action by or<br>against the association is in the district courts of this state. The association, at its<br>option, may waive this exclusive venue as to specific actions.26.1-42.1-06. Plan of operation.1.The association shall submit to the commissioner a plan of operation and any<br>amendments to this plan necessary or suitable to assure the fair, reasonable, and<br>equitable administration of the association.The plan of operation and anyamendments become effective upon written approval by the commissioner. If the<br>association fails to submit a suitable plan of operation within ninety days following<br>August 1, 1999, or if at any time after August 1, 1999, the association fails to submit<br>suitable amendments to the plan, the commissioner, after notice and hearing, shall<br>adopt rules as necessary or advisable to implement this chapter.These rulescontinue in force until modified by the commissioner or superseded by a plan<br>submitted by the association and approved by the commissioner.2.All member insurers shall comply with the plan of operation.Page No. 53.The plan of operation must:a.Establish procedures by which all the powers and duties of the association<br>under section 26.1-42.1-05 will be performed.b.Establish procedures for handling assets of the association.c.Establish procedures for the disposition of liquidating dividends or other<br>moneys received from the estate of the insolvent insurer.d.Establish the amount and method of reimbursing members of the board of<br>directors under section 26.1-42.1-04.e.Establish procedures by which claims may be filed with the association, if<br>necessary, and establish acceptable forms of proof of covered claims. Notice<br>of claims to the receiver or liquidator of the insolvent insurer are deemed notice<br>to the association or the association's agent and periodically a list of claims<br>must be submitted to the association or similar organization in another state by<br>the receiver or liquidator.f.Establish regular places and times for meetings of the board of directors.g.Establish procedures for records to be kept of all financial transactions of the<br>association, the association's agents, and the board of directors.h.Provide that any member insurer aggrieved by any final action or decision of<br>the association may appeal to the commissioner within thirty days after the<br>action or decision.i.Establish procedures by which selections for the board of directors will be<br>submitted to the commissioner.j.Contain provisions necessary or proper for the execution of the powers and<br>duties of the association.4.The plan of operation may provide that powers and duties of the association, except<br>those under subdivision d of subsection 1 of section 26.1-42.1-05 and subdivision b<br>of subsection 2 of section 26.1-42.1-05, are delegated to a corporation, association,<br>or other organization that performs or will perform functions similar to those of this<br>association or this association's equivalent in two or more states. This corporation,<br>association, or organization must be reimbursed as a servicing facility would be<br>reimbursed and must be paid for performance of any other functions of the<br>association. A delegation under this subsection takes effect only with the approval<br>of the board of directors and the commissioner, and may be made only to a<br>corporation, association, or organization that extends protection not substantially<br>less favorable and less effective than that provided by this chapter.26.1-42.1-07. Duties and powers of the commissioner.1.The commissioner shall:a.Notify the association of the existence of an insolvent insurer within three days<br>after the commissioner receives notice of the determination of the insolvency.<br>The association is entitled to a copy of any complaint seeking an order of<br>liquidation with a finding of insolvency against a member company at the same<br>time that this complaint is filed with a court of competent jurisdiction.b.Upon request of the board of directors, provide the association with a statement<br>of the net direct written premiums of each member insurer.Page No. 62.The commissioner may:a.Suspend or revoke, after notice and hearing, the certificate of authority to<br>transact insurance in this state of any member insurer that fails to pay an<br>assessment when due or fails to comply with the plan of operation. In the<br>alternative, the commissioner may levy a fine on any member insurer that fails<br>to pay an assessment when due. A fine under this subdivision may not exceed<br>five percent of the unpaid assessment per month, except that a fine may not be<br>less than one hundred dollars per month.b.Revoke the designation of any servicing facility if the commissioner finds claims<br>are being handled unsatisfactorily.26.1-42.1-08. Effect of paid claims.1.Any person recovering under this chapter is deemed to have assigned that person's<br>rights under the policy to the association to the extent of recovery from the<br>association. Every insured or claimant seeking the protection of this chapter shall<br>cooperate with the association to the same extent as that insured or claimant would<br>have been required to cooperate with the insolvent insurer. The association does<br>not have a claim for relief against the insured of the insolvent insurer for any sums<br>the association paid out except for claims for relief the insolvent insurer would have<br>had if the sums had been paid by the insolvent insurer and except as provided in<br>subsection 2.In the case of an insolvent insurer operating on a plan withassessment liability, payments of claims of the association do not reduce the liability<br>of the insureds to the receiver, liquidator, or statutory successor for unpaid<br>assessments.2.The association may recover from the following persons the amount of any covered<br>claim paid on behalf of that person pursuant to this chapter:a.Any insured whose net worth on December thirty-first of the year immediately<br>preceding the date the insurer becomes an insolvent insurer exceeds<br>twenty-five million dollars and whose liability obligations to other persons are<br>satisfied in whole or in part by payments made under this chapter;b.Any person who is an affiliate of the insolvent insurer and whose liability<br>obligations to other persons are satisfied in whole or in part by payments made<br>under this chapter; andc.Any insured who is not a resident of this state at the time of the insured event,<br>except for first-party covered claims for property damage to an insured's<br>property that is permanently located in this state.3.The association and any similar organization in another state are recognized as<br>claimants in the liquidation of an insolvent insurer for any amounts paid by the<br>association or similar organization on covered claims obligations as determined<br>under this chapter or similar laws in other states and receive dividends and any<br>other distributions at the priority set forth in section 26.1-06.1-41.The receiver,liquidator, or statutory successor of an insolvent insurer is bound by determinations<br>of covered claim eligibility under this chapter and by settlements of claims made by<br>the association or a similar organization in another state. The court with jurisdiction<br>shall grant these claims priority equal to that which the claimant would have been<br>entitled in the absence of this chapter against the assets of the insolvent insurer.4.The association shall periodically file with the receiver or liquidator of the insolvent<br>insurer statements of the covered claims paid by the association and estimates of<br>anticipated claims on the association which preserve the rights of the association<br>against the assets of the insolvent insurer.Page No. 726.1-42.1-09. Exhaustion of other coverage.1.Any person with a claim against an insurer, regardless of whether that insurer is a<br>member insurer under any provision in an insurance policy other than a policy of an<br>insolvent insurer which is also a covered claim, is required to exhaust first that<br>person's right under that policy. Any amount payable on a covered claim under this<br>chapter must be reduced by the amount of any recovery under the insurance policy.2.Any person with a claim that may be recovered under more than one insurance<br>guaranty association or equivalent shall seek recovery first from the association of<br>the place of residence of the insured except that if the claim is a first-party claim for<br>damage to property with a permanent location, the person shall seek recovery first<br>from the association of the location of the property. Any recovery under this chapter<br>must be reduced by the amount of recovery from any other insurance guaranty<br>association or equivalent.26.1-42.1-10. Prevention of insolvencies. To aid in the detection and prevention ofinsurer insolvencies:1.The board of directors, upon majority vote, may make recommendations to the<br>commissioner for the detection and prevention of insurer insolvencies.2.The board of directors, upon majority vote, may make recommendations to the<br>commissioner on matters generally related to improving or enhancing regulation for<br>solvency.3.The board of directors, at the conclusion of any domestic insurer insolvency in which<br>the association was obligated to pay covered claims, may prepare a report on the<br>history and causes of the insolvency, based on the information available to the<br>association and submit this report to the commissioner.26.1-42.1-11.Examination of the association.The association is subject toexamination and regulation by the commissioner. The board of directors shall submit, by March<br>thirty-first of each year, a financial report for the preceding calendar year in a form approved by<br>the commissioner.26.1-42.1-12. Tax exemption. The association is exempt from payment of all fees andall taxes levied by this state or any political subdivision except taxes levied on property.26.1-42.1-13. Recognition of assessments in rates. The rate and premiums chargedfor insurance policies to which this chapter applies must include amounts sufficient to recoup a<br>sum equal to the amounts paid to the association by the member insurer less any amounts<br>returned to the member insurer by the association. These rates may not be determined to be<br>excessive because they contain an amount reasonably calculated to recoup assessments paid<br>by the member insurer.26.1-42.1-14. Immunity. There is no liability on the part of and no claim for relief mayarise against any member insurer, the association or the association's agents or employees, the<br>board of directors, or any person serving as a representative of any director, or the commissioner<br>or the commissioner's representatives for any action taken or any failure to act by these entities<br>in the performance of their powers and duties under this chapter.26.1-42.1-15. Stay of proceedings. All proceedings in which the insolvent insurer is aparty or is obligated to defend a party in any court in this state, subject to waiver by the<br>association in specific cases involving covered claims, must be stayed until the last day fixed by<br>the court for the filing of claims and additional time after this as may be determined by the court<br>from the date the insolvency is determined or an ancillary proceeding is instituted in the state,<br>whichever is later, to permit proper defense by the association of all pending causes of action.<br>As to any covered claims arising from a judgment under any decision, verdict, or finding basedPage No. 8on the default of the insolvent insurer or the insolvent insurer's failure to defend an insured, the<br>association on its own behalf or on behalf of such insured may apply to have the judgment, order,<br>decision, verdict, or finding set aside by the same court or administrator that made the judgment,<br>order, decision, verdict, or finding and may defend the claim on the merits.The liquidator,receiver, or statutory successor of an insolvent insurer covered by this chapter shall permit<br>access by the board or the board's authorized representative to the insolvent insurer's records<br>that are necessary for the board in carrying out the board's functions under this chapter with<br>regard to covered claims. In addition, the liquidator, receiver, or statutory successor shall provide<br>the board or the board's representative with copies of these records upon the request by the<br>board and at the expense of the board.Page No. 9Document Outlinechapter 26.1-42.1 insurance guaranty association
