Code Section Group

Insurance Code - INS

DIVISION 1. GENERAL RULES GOVERNING INSURANCE [100 - 1879.8]

  ( Division 1 enacted by Stats. 1935, Ch. 145. )

PART 2. THE BUSINESS OF INSURANCE [680 - 1879.8]

  ( Part 2 enacted by Stats. 1935, Ch. 145. )

CHAPTER 1. General Regulations [680 - 1113]

  ( Chapter 1 enacted by Stats. 1935, Ch. 145. )

ARTICLE 14.25. Insurance Assessment Bond Fund [1063.50 - 1063.68]
  ( Article 14.25 added by Stats. 1996, Ch. 793, Sec. 2. )

1063.50.
  

The California Insurance Guarantee Association is authorized to pay and discharge certain claims of insolvent insurers as defined in Section 1063.1 through the collection of premiums from its members, which amounts are limited by law and take time to assess and collect. If a natural disaster such as a major earthquake or fire were to occur in California, California’s housing stock could be adversely affected and there could be an immediate need for large sums of money to pay covered claims of insolvent insurers. This article provides for the ability of the department to issue bonds to more expeditiously and effectively provide for the payment of covered claims that arise as a result of a natural disaster. The bonds are to be paid from the premiums assessed by the department or by CIGA for those purposes. It is a public purpose and in the best interest of the public health, safety, and general welfare of the residents of this state to provide for the issuance of bonds by the department to pay claimants and policyholders having covered claims against insolvent insurers operating in this state.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.51.
  

(a) The terms “member insurer,” “insolvent insurer,” and “covered claims” have the meanings assigned those terms in Section 1063.1.

(b) “CIGA” means the California Insurance Guarantee Association, established pursuant to Article 14.2 (commencing with Section 1063).

(c) “Commissioner” means the Insurance Commissioner.

(d) “Board” means the board of governors of CIGA.

(e) “Department” means the Department of Insurance.

(f) “Insurance Assessment Bond Fund” is the fund created pursuant to Section 1063.52.

(g) “Insurance assessments” means the premiums collected by the department or by CIGA pursuant to Section 1063.5, 1063.53, or 1063.54.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.52.
  

The Insurance Assessment Bond Fund is hereby created in the State Treasury. Proceeds from the sale of bonds issued pursuant to this article and insurance assessments to repay bonds issued pursuant to this article shall be deposited in the Insurance Assessment Bond Fund.

All money in the fund is hereby continuously appropriated to the department for the exclusive purpose of carrying out the purposes of this part, and, notwithstanding the provisions of Chapter 2 (commencing with Section 12850) of Part 2.5 of Division 3 of Title 2 of the Government Code or the provisions of Article 2 (commencing with Section 13320) of Chapter 3 of Part 3 of Division 3 of Title 2 of the Government Code, or the provisions of Sections 11032 and 11033 of the Government Code, application of the fund shall not be subject to the supervision or budgetary approval of any other officer or division of state government. The department may pledge any or all of the moneys in the fund as security for payment of the principal of, and interest and redemption premiums, if any, on, bonds issued pursuant to this article, and, for that purpose or as necessary or convenient to the accomplishment of any other purpose under this article, may divide the fund into separate accounts.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.53.
  

(a) In the event a natural disaster such as an earthquake or fire results in covered claim obligations currently payable and owed by the association in excess of its capacity to pay from current funds and current premium assessments allowable under Section 1063.5, and upon a declaration of emergency by the Governor or the President of the United States, the board, in its sole discretion, may by resolution request the department to issue bonds pursuant to this article to provide funds for the payment of covered claims and expenses related thereto. Should the bonds be issued, the department shall have the authority to levy upon member insurers insurance assessments in the amount necessary to pay the principal of and interest on the bonds, and to meet other requirements established by agreements relating to the bonds. The department may enter into an agreement with CIGA for CIGA to act as agent for the department to collect the assessments.

The department may assume the obligation to pay the covered claims of insolvent insurers for the purpose of paying the claims with the proceeds of the bonds. The obligation of the department to pay claims shall be a limited obligation payable only out of the proceeds of the bonds. The department shall enter into an agreement with CIGA for CIGA to act as agent of the department to adjust and administer the payment of the claims. Premium payments collected pursuant to this authority may only be used for servicing the bond obligations provided for in this section and may be pledged for that purpose. Premium assessments made pursuant to this section shall also be subject to the surcharge provisions in Sections 1063.14 and 1063.145.

(b) In addition to the premium assessments provided for in this section, the board in its discretion and subject to other obligations of the association, may utilize current funds of the association, premium assessments made under Section 1063.5, and advances or dividends received from the liquidators of insolvent insurers to pay the principal and interest on any bonds issued at the board’s request.

(Amended by Stats. 2004, Ch. 183, Sec. 236. Effective January 1, 2005.)

1063.54.
  

Notwithstanding any other provision of law, the department, in accordance with this article and at the request of the board pursuant to Section 1063.53 may issue bonds in order to provide for the payment of covered claims of insolvent insurers or in order to make loans to CIGA, which moneys CIGA is hereby authorized to borrow, to provide for the payment of covered claims of insolvent insurers. For this purpose, the department or CIGA may levy upon member insurers insurance assessments in the amounts necessary to pay the principal of and interest on the bonds and to meet other requirements established by agreements relating to the bonds. The department shall enter into an agreement with CIGA for CIGA to act as agent for the department to collect the assessments. The department may assume the obligation to pay the covered claims of insolvent insurers for the purpose of paying the claims with the proceeds of the bonds. The obligation of the department to pay claims shall be a limited obligation payable only out of the proceeds of the bonds. The department shall enter into an agreement with CIGA for CIGA to act as agent of the department to adjust and administer the payment of claims. The total bonded indebtedness authorized pursuant to this article shall not exceed the level that can be supported by the revenues dedicated to retiring the bonds.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.55.
  

The bonds shall be authorized by order of the commissioner, shall be in the form, shall bear the date or dates, and shall mature at the time or times as the order or the indenture authorized by the order may provide, except that no bond shall mature more than 20 years from the date of its issue. The bonds may be issued as serial bonds or as term bonds, or as a combination thereof, and, notwithstanding any other provision of law, the amount of principal of, or interest on, bonds maturing at each date of maturity need not be equal. The bonds shall bear interest at the rate or rates, variable or fixed or a combination thereof, be in the denominations, be in the form, either coupon or registered, carry the registration privileges, be executed in the manner, be payable in the medium of payment at the place or places within or without the state, be subject to the terms of redemption, and contain the terms and conditions as the order or indenture may provide. The bonds shall be sold at public or private sale by the Treasurer at, above, or below the principal amount thereof, on the terms and conditions and for the consideration in the medium of payment that the Treasurer shall determine prior to the sale.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.56.
  

Upon receipt of an order of the commissioner authorizing the issuance of bonds, the Treasurer shall provide for their preparation in accordance with the order. The bonds authorized to be issued shall be sold by the Treasurer, at public sale or at private sale, as directed by the order. In the case of a public sale, (a) the bonds shall be sold by the Treasurer at such times as may be fixed by him or her, and upon such notice as he or she may deem to be advisable, upon sealed bids, to the bidder whose bid will result in the lowest net interest cost on account of the bonds, and (b) if no bids are received, or if the Treasurer determines that the bids are not satisfactory, the Treasurer may reject all bids received, if any, and either readvertise or sell the bonds at private sale.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.57.
  

The department may provide for the issuance of refunding bonds for the purpose of refunding any bonds then outstanding which have been issued under the provisions of this article, including the payment of any redemption premium thereon and any interest accrued or to accrue to the date of redemption of those bonds. The issuance of the obligations, the maturities and other details thereof, the rights of the holders thereof, and the rights, duties, and obligations of the department in respect of the same shall be governed by the provisions of this article that relate to the issuance of bonds, insofar as those provisions may be appropriate therefor.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.58.
  

Refunding bonds issued as provided in Section 1063.57 may be sold, or exchanged for outstanding bonds issued under this article and, if sold, the proceeds thereof may be applied, in addition to any other authorized purposes, to the purchase, redemption, or payment of the outstanding bonds. Pending the application of the proceeds of the refunding bonds, with any other available moneys, (a) to the payment of the principal, accrued interest, and any redemption premium on the bonds being refunded, (b) to the payment of any interest on those refunding bonds, or (c) to any expenses incurred in connection with the refunding, the proceeds may be invested in obligations permitted under the bond resolution authorizing the issuance of refunding bonds.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.59.
  

The Treasurer or any other person executing the notes or bonds shall not be subject to any personal liability or accountability by reason of the issuance thereof.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.60.
  

The department may issue negotiable bond anticipation notes and may refund those notes from time to time. Bond anticipation notes may be paid from the proceeds of sale of the bonds of the department in anticipation of which they were issued. Bond anticipation notes and agreements relating thereto and the order or orders authorizing those notes and agreements may contain any provisions, conditions, or limitations that a bond, agreement relating thereto, or bond order of the department may contain.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.61.
  

The state does hereby pledge to and agree with the holders of any bonds issued under this article that the state will not limit or alter the rights hereby vested in the department to fulfill the terms of any agreements made with the holders thereof or in any way impair the rights and remedies of those holders until the bonds, together with the interest thereon, with interest on any unpaid installments of interest, and all costs and expenses in connection with any action or proceeding by or on behalf of those holders, are fully met and discharged. The department is authorized to include this pledge and agreement of the state in any agreement with the holders of the notes or bonds.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.62.
  

Bonds issued under this article shall be legal investments in which all public officers and public bodies of this state, its political subdivisions, all municipalities and municipal subdivisions, all insurance companies and associations and other persons carrying on an insurance business, all banks, bankers, banking institutions, including savings and loan associations, building and loan associations, trust companies, savings banks and savings associations, investment companies and other persons carrying on a banking business, all administrators, guardians, conservators, executors, trustees and other fiduciaries, and all other persons whatsoever who are now or may hereafter be authorized to invest in bonds or in other obligations of the state, may properly and legally invest funds, including capital, in their control or belonging to them. The bonds may be used by those private financial institutions, persons, or associations as security for public deposits. The bonds are also hereby made securities which may properly and legally be deposited with and received by all public officers and bodies of the state or any agency or political subdivision of the state and all municipalities and public corporations for any purpose for which the deposit of bonds or other obligations of the state is now or may hereafter be authorized by law, including deposits to secure public funds.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.63.
  

All or any part of the revenues from the insurance assessments or from loan repayments by CIGA may be pledged by the department to secure the repayment of any bonds issued under this article and to pay costs incurred in the issuance or administration of the bonds. Any pledge made to secure the bonds shall be valid and binding from the time the pledge is made. The revenues pledged and thereafter received by the department or by any trustee, depository or custodian shall be deposited in a separate account and shall be immediately subject to the lien of the pledge without any physical delivery thereof or further act, and the lien of the pledge shall be valid and binding against all parties having claims of any kind in tort, contract, or otherwise against the department, CIGA, or the trustee, depository, or custodian, irrespective of whether the parties have notice thereof. The indenture or agreement by which the pledge is created need not be recorded. All of those insurance assessments, to the extent so pledged, are hereby continuously appropriated for that purpose.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.64.
  

The department and CIGA are each authorized to enter into those contracts or agreements with those banks, insurers, or other financial institutions that it determines are necessary or desirable to improve the security and marketability of the bonds issued under this article. Those contracts or agreements may contain an obligation to reimburse, with interest, any of those banks, insurers, or other financial institutions for advances used to pay the purchase price of, or principal or interest on, the bonds. Any such reimbursement obligation shall be payable solely from, and may be secured by a pledge of, the revenues derived from the insurance assessments levied for that purpose or from loan repayments by CIGA.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.65.
  

The bonds shall not be, and shall state on their face that they are not, general obligations of the department or of the state or any political subdivision thereof, but are limited obligations of the state.

Bonds issued under the provisions of this article shall not be deemed to constitute a debt or liability or general obligation of the state or any political subdivision thereof other than as provided in this article and shall be payable solely from funds herein provided therefor. All of the bonds and any prospectus or other printed representation of the department concerning the bonds shall contain on the face thereof a statement to the following effect: “Neither the faith and credit nor the taxing power of the State of California is pledged to the payment of the principal of, or interest on, this bond.”

The issuance of bonds under the provisions of this article shall not directly or indirectly or contingently obligate the state or any political subdivision thereof to levy or to pledge any form of taxation whatever therefor or to make any appropriation for their payment.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.66.
  

Bonds issued by the department pursuant to this article, their transfer and the income therefrom, shall be free from taxation of every kind by the state and every city or county or other political subdivision of the state, except inheritance and gift taxes.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.67.
  

The department is authorized and empowered to employ financial consultants, advisers, legal counsel, and accountants as may be necessary in its judgment in connection with the issuance and sale of any bonds or other obligations of the department. Payment for these services may be made out of the proceeds of the sale of the bonds or other obligations. The department may delegate to the Treasurer the employment of those professionals.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

1063.68.
  

The provisions of Section 10295 and Sections 10335 to 10382, inclusive, of the Public Contract Code shall not apply to agreements entered into by the department or Treasurer in connection with the obtaining of financing.

(Added by Stats. 1996, Ch. 793, Sec. 2. Effective January 1, 1997.)

INSInsurance Code - INS14.25