The California Insurance Guarantee Association (CIGA) was created by legislation in 1969 as an association of insurers that makes payments to policyholders of property/casualty, workers’ compensation and “miscellaneous” insurers when the member insurance company becomes insolvent and is unable to do so. It is a statutory entity that depends on the establishing legislation for its existence and for a definition of the scope of its powers, duties and protections.
CIGA is funded by premium surcharges upon applicable lines of insurance, and those surcharges are limited by statute to a maximum of 2%.
The purpose of CIGA is to pay “covered claims” of member insurance companies that have become insolvent. CIGA’s total liability for any single claim is $500,000, other than claims for workers’ compensation, which are not limited. CIGA does not have to pay a claim to the extent that it is covered by any other insurance of a class covered by this law and available to the claimant or insured (Insurance Code §1063.1(c)(9)(A)).
There are several catastrophic risks that contribute CIGA’s need to be able to access large amounts of cash including pandemic risks, the risk of a devastating earthquake occurring during work time in a major city, and potential losses due to wildfires and other natural disasters.
In 2003, Assembly Bill 227 (Vargas) provided express authority for CIGA to issue up to $1.5 billion in bonds to fund workers’ compensation claims payments for injured workers of insolvent insurers. At the time and beginning in the late 1990s, CIGA had assumed responsibility for paying covered claims of 27 insolvent workers’ compensation insurance companies. The Legislature placed a sunset provision on the original bonding authority and has extended the date on four separate occasions.
The California legislature has passed, and Governor Newsom has just signed AB 1541 a fifth extension of this bonding authority. The last date upon which CIGA is authorized to issue bonds would change from January 1, 2023 to January 1, 2026.
Specifically, this new law extends the existing ability of CIGA to request the issuance of bonds by the California Infrastructure and Economic Development Bank to more expeditiously and effectively provide for the payment of covered claims arising from insolvencies of insurance companies providing workers’ compensation insurance.