K.S.A. § 40-2906 — KS Code / Chapter 40 / Article 29 / Section 40-2906
40-2906 - Insolvency of insurer; duties of association; powers; certificate of contribution.
Status: in_force

40-2906. Insolvency of insurer; duties of association; powers; certificate of contribution. (a) In the event of the determination of insolvency and order of liquidation of a licensed insurer after the effective date of this act, the association shall:

(1) Be obligated to the extent of the covered claims existing prior to the determination of insolvency and arising within 30 days after the determination of insolvency, before the policy expiration date if less than 30 days after the determination or before the insured replaces the policy or causes such policy's cancellation if such insured does so within 30 days of the determination, except that such obligation shall include only that amount of each covered claim that does not exceed the first $300,000 of any claim, except that the association shall pay the full amount of any covered claim arising out of a workmen's compensation policy. In no event shall the association be obligated to the policyholder or claimant in an amount in excess of the face amount of the policy from which the claim arises. Additionally, in no event shall the association be obligated to pay an amount in excess of $300,000 for all first and third-party claims under a policy or endorsement providing, or that is found to provide, cybersecurity insurance coverage and arising out of, or related to, a single insured event, regardless of the number of claims made or the number of claimants;

(2) be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent;

(3) assess insurers amounts necessary to pay the obligations of the association under subsection (1) subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, the cost of examinations under K.S.A. 40-2911, and amendments thereto, and other expenses authorized by this act. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the preceding calendar year bears to the net direct written premiums of all member insurers for the preceding calendar year. Each member insurer shall be notified of the assessment not later than 30 days before it is due. No member insurer may be assessed in any year an amount greater than 2% of that member insurer's net direct written premiums for the preceding calendar year. If the maximum assessment, together with the other assets of the association, does not provide in any one year an amount sufficient to make all necessary payments, the funds available shall be prorated, and the unpaid portion shall be paid as soon thereafter as funds become available. The association may exempt or defer, in whole or in part, the assessment of any member insurer if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance, or the commissioner advises the association that such assessment would in such commissioner's opinion be detrimental to the solvency of a member insurer. Each member insurer may set off against any assessment, authorized payments made on covered claims and expenses incurred in the payment of such claims by the member insurer;

(4) investigate claims brought against the association and adjust, compromise, settle and pay covered claims to the extent of the association's obligation and deny all other claims and may review settlements, releases and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which such settlements, releases and judgments may be properly contested;

(5) notify such persons as the commissioner directs under K.S.A. 40-2908 (b)(1), and amendments thereto;

(6) handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the commissioner, except that such designation may be declined by a member insurer; and

(7) reimburse each servicing facility for obligations of the association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the association and pay the other expenses of the association authorized by this act.

(b) The association may:

(1) Employ or retain such persons as are necessary to handle claims, provide covered policy benefits and service and perform other duties of the association;

(2) borrow funds necessary to effect the purposes of this act in accordance with the plan of operation;

(3) sue or be sued;

(4) negotiate and become a party to such contracts as are necessary to carry out the purposes of this act;

(5) perform such other acts as are necessary or proper to effectuate the purposes of this act; or

(6) refund to the member insurers, in proportion to the contribution of each member insurer to the association, that amount by which the assets of the association exceed the liabilities, if, at the end of any calendar year, the board of directors finds that the assets of the association exceed the liabilities of the association as estimated by the board of directors for the coming year.

(c) The association shall issue to each insurer paying an assessment under this act a certificate of contribution, in a form prescribed by the commissioner, for the amount so paid. All outstanding certificates shall be of equal dignity and priority without reference to amounts or dates of issue. A certificate of contribution may be shown by the insurer in its financial statement as an asset in such form and for such amount, if any, and period of time as the commissioner may approve.

(d) Notwithstanding any other provisions of this act:

(1) A covered claim shall not include a claim filed with the association after the earlier of:

(A) 18 months after the date of the order of liquidation; or

(B) the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer.

(2) A covered claim shall not include any claim filed with the association or a liquidator for protection afforded under the insured's policy for incurred-but-not-reported losses.

(3) Any obligation of the association to defend an insured on a covered claim shall cease upon the association's:

(A) Payment, by settlement or on a judgment, of an amount equal to the lesser of the association's covered claim obligation limit or the applicable policy limit; or

(B) tender of such amount.