Opinion ID: 2331492
Heading Depth: 1
Heading Rank: 4

Heading: Overview of the Guaranty Act and 2005 Amendment

Text: The Guaranty Act, K.S.A. 40-2901 et seq., was adopted in 1970. L.1970, ch. 185, secs. 1-19. Its stated purpose is to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers. K.S.A. 40-2901. This purpose guides any interpretation of the Guaranty Act, and it is to be liberally construed to effect these stated purposes. K.S.A. 40-2901. The Act applies to property and casualty insurance, including the professional liability/medical malpractice insurance at issue in this case. K.S.A. 40-2902; K.S.A. 40-1102. It was based on the National Association of Insurance Commissioners' widely adopted Post-Assessment Property Liability Insurance Guaranty Model Act. See Hetzel v. Clarkin, 244 Kan. 698, 701, 772 P.2d 800 (1989). The Guaranty Act establishes KIGA as a nonprofit unincorporated legal entity whose membership statutorily comprises all insurers authorized to write insurance covered by the Guaranty Act. K.S.A. 40-2904. KIGA assesses annual fees against member insurers to pay its obligations. The assessment is based on a percentage of insurer premiums. K.S.A. 40-2906(a)(3). KIGA uses the money it receives to cover claims against insolvent insurance companies. Two specific statutorily imposed duties arise once an insurer is determined to be insolvent. First, KIGA is deemed the insurer to the extent of its statutory obligation on the covered claims and has all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent. K.S.A. 40-2906(a)(2). Second, KIGA is obligated to pay covered claims existing prior to the insolvency determination and any other claims arising within 30 days after that determination. K.S.A. 40-2906(a)(1). In cases other than workers compensation, KIGA's obligation is limited to the face amount of the insolvent insurer's policy, up to a $300,000 cap. K.S.A. 40-2906(a)(1). But the Guaranty Act has always limited KIGA's obligations by requiring claimants seeking coverage from KIGA to first exhaust (offset) any rights under certain other available insurance claims. K.S.A. 40-2910. This is sometimes referred to as a nonduplication of recovery provision. See Hetzel, 244 Kan. at 702, 772 P.2d 800. Those exhaustion requirements were amended in 2005. L.2005, ch. 92, sec. 4. The effect of that amendment, if any, is the subject of this dispute. Therefore, a review of both the original and amended statute is required because the success of Brennan's due process argument hinges on whether the 2005 amendment changed KIGA's obligation to Brennan after PHICO became insolvent. The statute in effect at the time PHICO was declared insolvent stated: Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim shall be required to exhaust first his right under such policy. Any amount payable on a covered claim under this act shall be reduced by the amount of any recovery under such insurance policy. K.S.A. 40-2910(a). At that time, the Act defined covered claim as an unpaid claim, including one for unearned premiums, which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this act applies issued by an insurer, if such insurer becomes an insolvent insurer after the effective date of this act and (1) the claimant or insured is a resident of this state at the time of the insured event; or (2) the property from which the claim arises is permanently located in this state. `Covered claim' shall not include any amount due any reinsurer, insurer, insurance pool or underwriting association, as subrogation recoveries or otherwise. K.S.A. 40-2903(c). In 2005, the italicized language below was added to explicitly offset benefits from health insurance policies. L.2005, ch. 92, sec. 4. It states: Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim shall be required to exhaust first his right under such policy. A claim under an insurance policy shall include a claim under any kind of insurance, whether such claim is a first party or third party claim, and shall include, without limitation, accident and health insurance, workers' compensation, Blue Cross and Blue Shield and all other coverages except for policies of an insolvent insurer. Any amount payable on a covered claim under this act shall be reduced by the amount of any recovery under such other insurance policy. (Emphasis added.) K.S.A. 2010 Supp. 40-2910(a). The parties concede that if PHICO's insolvency had occurred after the 2005 amendment became law, the offset in controversy here would not present a due process issue under the plain language of the amended statute. But since those are not our facts, we must next determine whether the legislature could reach back and reduce or eliminate KIGA's liability for pending claims with this statutory amendment.