CSAC Excess Insurance Authority is a joint powers authority formed to cover the workers’ compensation obligations of its member counties through a combination of risk retention and excess insurance. It had secured retention ($500,000) with a now defunct insurer – the Protective National Insurance Company of Omaha.

On behalf of member Fresno County and member Mendocino County, CSAC paid workers’ compensation benefits for an employee injury. The total amount of payments in each of the two cases exceeded the $500,000 retention. Claims were made for the payments to the excess carrier, Protective National, but a Nebraska court filed a declaration of insolvency with respect to Protective in February 2004. Thus, Protective forwarded CSAC’s claims to the California Insurance Guarantee Association (CIGA) for payment.

CIGA is a statutory nonprofit unincorporated association to which insurance companies must belong as a condition of doing business in California. Its primary objective is to pay “covered claims” arising from the failure of an insolvent insurer to meet its obligations under its policies.CIGA assesses the costs of covering an insolvent’s obligations against its membership, which in turn recovers this cost through premium surcharges on policies; this spreads the costs of insolvency across the entirety of the insurance market

CIGA denied the claims essentially asserting that these were not “covered claims” within the meaning of a growing body of law embellishing the definition of what is, and is not a “covered claim.”.

CSAC sought a declaration from the Superior Court that its payments for two of its members in excess of the agreed retention are within the statutory definition of unpaid “covered claims” that CIGA has an obligation to reimburse. The trial court issued a ruling in favor of CSAC that CIGA had breached its statutory duty to reimburse CSAC for the excess workers’ compensation coverage due under the Protective policy.

CIGA appealed. The Court of Appeal affirmed the ruling in the unpublished case of CSAC Excess Insurance Authority v California Insurance Guarantee Association.

On appeal, CIGA contends that Protective did not “incur” an “obligation” to indemnify until the retention limits were reached, which did not occur until after the drop-dead date for presenting claims to CIGA specified in Insurance Code section 1063.1(c)(1)(D) and thus were not “covered claims.” The Court of Appeal rejected this argument and concluded that the obligation for excess insurance is incurred on the date of injury, not on the date of the exhaustion of the retention.

CIGA also contends that even if the Mendocino and Fresno workers’ compensation payments were covered excess claims within the meaning of section 1063.1(c), they “ceased to be” once the liquidator ended Protective’s existence and cut off any further claims against it. The Court of Appeal found no authority for this contention and concluded that a liquidation termination order does not extinguish CIGA’s obligations under California law.