§ 27-34-8. Powers and duties of the association. (a) The association shall:

(1)(i) Be obligated to pay covered claims existing prior to the order of liquidation; arising within sixty (60) days after the order of liquidation or before the policy expiration date if less than sixty (60) days after the order of liquidation or before the insured replaces the policy or causes its cancellation if the insured does so within sixty (60) days of the order of liquidation. The obligations shall be satisfied by paying to the claimant an amount as follows:

(A) The full amount of a covered claim for benefits under a workers' compensation insurance coverage;

(B) An amount not exceeding ten thousand dollars ($10,000), per policy for a covered claim for the return of unearned premium;

(C) An amount not exceeding five hundred thousand dollars ($500,000), per claimant for all other covered claims for insolvencies occurring on or after January 1, 2008 and an amount not exceeding three hundred thousand dollars ($300,000) per claimant for all other covered claims for insolvencies occurring prior to January 1, 2008.

(ii) In no event shall the association be obligated to pay a claimant an amount in excess of the obligation of the insolvent insurer under the policy or coverage from which the claim arises. Notwithstanding any other provision of this chapter, a covered claim shall not include a claim filed with the guaranty association after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer. For the purpose of filing a claim under this subsection, notice of claims to the liquidator of the insolvent insurer shall be deemed notice to the association or its agent and a list of claims shall be periodically submitted to the association or association similar to the association in another state by the liquidator;

(iii) Any obligation of the association to defend an insured shall cease upon the association's payment or tender of an amount equal to the lesser of the association's covered claim obligation limit or the applicable policy limit.

(2) Be deemed the insurer to the extent of its obligation on the covered claims and to that extent, subject to the limitation provided in this chapter, shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent, including, but not limited to, the right to pursue and retain salvage and subrogation recoverable on covered claim obligations to the extent paid by the association. The association shall not be deemed the insolvent insurer for the purpose of conferring jurisdiction;

(3) Allocate claims paid and expenses incurred among the three (3) accounts separately, and assess member insurers separately for each account amounts necessary to pay the obligations of the association under subdivision (a)(1) of this subsection subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency and other expenses authorized by this chapter. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the calendar year preceding the assessment on the kinds of insurance in the account bears to the net direct written premiums of all member insurers for the calendar year preceding the assessment on the kinds of insurance in the account. Each member insurer shall be notified of the assessment not later than thirty (30) days before it is due.

A member insurer may not be assessed in any one year on any account an amount greater than two percent (2%) of that member insurer's net direct written premiums for the calendar year preceding the assessment on the kinds of insurance in the account. If the maximum assessment, together with the other assets of the association in any account, does not provide in any one year in any account an amount sufficient to make all necessary payments from that account, each member insurer shall be assessed the additional amount that must be obtained to make all necessary payments of the underfunded account from the other two accounts, subject to the same limitation of two percent (2%) of that member insurer's net direct written premiums for the calendar year preceding the assessment on the kinds of insurance in the account. The additional assessments shall be considered loans by and between the separate accounts. Amounts borrowed under this subsection shall be paid back to the separate accounts from which they were borrowed, out of assets, including, but not limited to, existing and future assessments in the account receiving the loan. An interest charge shall be levied on all amounts borrowed under this subsection based on the average prime rate of interest for each year the money remains unpaid. If the amounts borrowed remain unpaid on the seventh yearly anniversary as a result of the inability of the borrowing account to make repayment, then the amount borrowed and interest which is not repaid, starting with the principal and interest of the first year, shall be considered uncollectible. The funds available shall be prorated and the unpaid portion shall be paid as soon after this 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. However, during the period of deferment, no dividends shall be paid to shareholders or policyholders. Deferred assessments shall be paid when the payment will not reduce capital or surplus below required minimums. Payments shall be refunded to those companies receiving larger assessments by virtue of the deferment, or, at the election of any company, credited against future assessments.

(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. The association shall pay claims in any order that it may deem reasonable, including the payment of claims as they are received from the claimants or in groups or categories of claims. The association shall have the right to appoint and to direct legal counsel retained under liability insurance policies for the defense of covered claims;

(5) Notify claimants in this state as deemed necessary by the commissioner and upon the commissioner's request, to the extent records are available to the association;

(6)(i) Have the right to review and contest as set forth in this subsection settlements, releases, compromises, waivers and judgments to which the insolvent insurer or its insureds were parties prior to the entry of the order of liquidation. In an action to enforce settlements, releases and judgments to which the insolvent insurer or its insureds were parties prior to the entry of the order of liquidation, the association shall have the right to assert the following defenses, in addition to the defenses available to the insurer:

(A) The association is not bound by a settlement, release, compromise or waiver executed by an insured or the insurer, or any judgment entered against an insured or the insurer by consent or through a failure to exhaust all appeals, if the settlement, release, compromise, waiver or judgment was:

(I) Executed or entered into within one hundred twenty (120) days prior to the entry of an order of liquidation, and the insured or the insurer did not use reasonable care in entering into the settlement, release, compromise, waiver or judgment, or did not pursue all reasonable appeals of an adverse judgment; or

(II) Executed by or taken against an insured or the insurer based on default, fraud, collusion or the insurer's failure to defend.

(B) If a court of competent jurisdiction finds that the association is not bound by a settlement, release, compromise, waiver or judgment for the reasons described in subparagraph (i)(A), the settlement, release, compromise, waiver or judgment shall be set aside, and the association shall be permitted to defend any covered claim on the merits. The settlement, release, compromise, waiver or judgment may not be considered as evidence of liability or damages in connection with any claim brought against the association or any other party under this chapter.

(C) The association shall have the right to assert any statutory defenses or rights of offset against any settlement, release, compromise or waiver executed by an insured or the insurer, or any judgment taken against the insured or the insurer.

(ii) As to any covered claims arising from a judgment under any decision, verdict or finding based on the default of the insolvent insurer or its failure to defend, the association, either on its own behalf or on behalf of an insured may apply to have the judgment, order, decision, verdict or finding set aside by the same court or administrator that entered the judgment, order, decision, verdict or finding and shall be permitted to defend the claim on the merits.

(7) 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, but the designation may be declined by a member insurer;

(8) 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 shall pay the other expenses of the association authorized by this chapter;

(9)(i) The association shall obtain a line of credit for the benefit of each account, in an amount not to exceed the applicable maximum to ensure the immediate availability of funds for purposes of future claims and expenses attributable to an insurer insolvency in that account. The line of credit shall be obtained from qualified financial institutions. The line of credit shall provide for a thirty (30) day notice of termination or nonrenewal to the commissioner and the association and shall provide funding to the association within three (3) business days of receipt of written notice from the commissioner of an insolvent insurer in that account. Each member insurer upon receipt of notice from the association shall make immediate payment for its proportionate share of the amount borrowed based on the premium for the preceding calendar year. The maximum line of credit or preinsolvency assessment for each account shall be subject to prior review and approval by the commissioner at the time of origination.

(ii) If the association cannot obtain a line of credit, the association may obtain an irrevocable line of credit agreement from each member insurer in an amount not to exceed the member insurer's maximum assessment pursuant to subdivision (3) of this subsection to ensure the immediate availability of funds for the purposes of future claims and expenses attributable to an insurer insolvency;

Any amount drawn under any line of credit shall be considered a payment toward the member insurer's assessment provided for in subdivision (3) of this subsection;

The member insurer shall provide funding to the association under the line of credit within three (3) business days of receipt of a written request from the association for a draw-down under the line of credit;

The line of credit agreement shall be subject to prior review and approval by the commissioner at the time of origination and any subsequent renewal. It shall include any commercially reasonable provisions the association or the commissioner may deem advisable, including a provision that the line of credit is irrevocable or for a stated period of time and provides for thirty (30) day notice to the association and the commissioner that the line is being terminated or not renewed;

(iii) If a line of credit is not given as provided for in this section, the member insurer shall be responsible for the payment of an assessment of up to the member's proportionate share of the applicable maximum as set forth in this subsection which shall be paid into a pre-insolvency assessment fund in each account.

(10) Submit, not later than ninety (90) days after the end of the association's fiscal year, a financial report for the preceding fiscal year in a form approved by the commissioner.

(b) The association may:

(1) Employ or retain persons as are necessary to handle claims and perform other duties of the association;

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

(3) Sue or be sued;

(4) Negotiate and become a party to any contracts necessary to carry out the purpose of this chapter;

(5) Perform any other acts necessary or proper to effectuate the purpose of this chapter; and

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

(c) Suits involving the association:

(1) Except for actions by the receiver, all actions relating to or arising out of this chapter against the association shall be brought in the courts in this state. The courts shall have exclusive jurisdiction over all actions relating to or arising out of this chapter against the association.

(2) The exclusive venue in any action by or against the association is in the Providence county superior court. The association may, at its option, waive this venue as to specific actions.

History of Section. (P.L. 1988, ch. 407, § 2; P.L. 1990, ch. 19, § 1; P.L. 1991, ch. 2, § 1; P.L. 1991, ch. 348, § 12; P.L. 1992, ch. 137, § 1; P.L. 1994, ch. 404, § 16; P.L. 1996, ch. 189, § 1; P.L. 2002, ch. 292, § 61; P.L. 2004, ch. 549, § 1; P.L. 2004, ch. 607, § 1; P.L. 2005, ch. 161, § 1; P.L. 2005, ch. 189, § 1; P.L. 2006, ch. 111, § 1; P.L. 2006, ch. 131, § 1; P.L. 2007, ch. 88, § 1; P.L. 2007, ch. 130, § 1; P.L. 2007, ch. 341, § 1; P.L. 2007, ch. 431, § 1; P.L. 2010, ch. 91, § 1; P.L. 2010, ch. 117, § 1.)