§ 56-12-107 — Powers and duties of association

(a) The association shall: (1) (A) Be obligated to the extent of the covered claims existing prior to the determination of insolvency and arising within thirty (30) days after the determination of insolvency, or before the policy expiration date if less than thirty (30) days after the determination, or before the insured replaces the policy or on request effects cancellation, if the insured does so within thirty (30) days of the determination, but the obligation shall include only that amount of each covered claim that is in excess of one hundred dollars ($100) and is less than one hundred thousand dollars ($100,000), except that the association shall pay the full amount of any covered claim arising out of a workers' compensation policy. In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises; (B) In the case of claims other than workers' compensation arising from bodily injury, sickness, or disease, including death resulting from bodily injury, sickness, or disease, the amount for which the association shall be obligated shall not exceed the claimant's reasonable expenses incurred for necessary medical, surgical, X-ray and dental services, including prosthetic devices and necessary ambulance, hospital, professional nursing and funeral services, and any amounts actually lost by reason of claimant's inability to work and earn wages or salary or their equivalent that would otherwise have been earned in the normal course of the injured claimant's employment, to which may be added at the discretion of the association an additional sum as compensation for permanent physical impairment if the payment can be made within the policy limits; (C) (i) Any obligation of the association to defend an insured shall cease upon the association's payment, by settlement releasing the insured or on a judgment, of an amount equal to the lesser of the association's covered claim obligation limit or the applicable policy limit; (ii) Notwithstanding any other provisions of this part, except in the case of a claim for benefits under workers' compensation coverage, any obligation of the association to any and all persons shall cease when ten million dollars ($10,000,000) has been paid in the aggregate to or on behalf of any single insured and its affiliates by the association and any one (1) or more associations similar to the association of any other state or states or any property and casualty security fund that obtains contributions from insurers on a pre-insolvency basis, on covered claims or allowed claims arising under the policy or policies of any one (1) insolvent insurer. For the purposes of this section, "affiliate" means a person who directly, or indirectly, through one (1) or more intermediaries, controls, is controlled by, or is under common control with another person. If the association determines that there may be more than one (1) claimant having a covered claim or allowed claim against the association or any associations similar to the association or any property and casualty insurance security fund in other states, under the policy or policies of any one (1) insolvent insurer, the association may establish a plan to allocate amounts payable by the association in the manner that the association in its discretion deems equitable; (2) Be deemed the insurer to the extent of its obligation on the covered claims and to this extent 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 paid covered claim obligations. The association shall not be deemed the insolvent insurer for any purpose relating to the issue of whether the association is amenable to the personal jurisdiction of the courts of any other state; (3) Allocate claims paid and expenses incurred among the two (2) accounts separately, and assess member insurers separately for each account amounts necessary to pay the obligations of the association under subdivision (a)(1) subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, and expenses authorized by this part. 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 on the kinds of insurance in the account bears to the net direct written premiums of all member insurers for the preceding calendar year 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. No member insurer may be assessed in any year on any account an amount greater than two percent (2%) of that member insurer's net direct written premiums for the preceding calendar year 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 (1) year in any account an amount sufficient to make all necessary payments from that account, 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. Each member insurer may set off against any assessment, authorized payments made on covered claims and expenses incurred in the payment of the claims by the member insurer if they are chargeable to the account for which the assessment is made; (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 the settlements, releases and judgments may be properly contested; (5) Notify any persons as the commissioner directs under § 56-12-109(b)(1) ; (6) Handle claims through its employees or through one (1) or more insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the commissioner, but 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 shall pay the other expenses of the association authorized by this part. (b) The association may: (1) Appear in, defend, and appeal any action on a claim brought against the association; (2) Employ or retain such persons as are necessary to handle claims and perform other duties of the association; (3) Borrow funds necessary to effect the purposes of this part in accordance with the plan of operation. In the event of an insolvency resulting in covered claims payable by the association in excess of its capacity to pay from assessments under subdivision (a)(3), the association, in its sole discretion, may by resolution request the local development authority to issue bonds and/or notes pursuant to title 4, chapter 31, part 8, in such amounts as the association may determine necessary to provide funds for the payments of covered claims and expenses related thereto. However, the amount of the bond issuance may be limited by §§ 4-31-804 and 4-31-805 with the local development authority having the final authority to determine the total amount of the bond issuance including issuance costs. When the association and the local development authority agree that bonds or notes shall be issued to pay covered claims in the event of an insolvency, the association shall have the authority to annually assess member insurers for amounts necessary to secure and provide for the repayment of the indebtedness, including, without limitation, the principal, redemption premium, if any, and interest on, and related costs of issuance of such indebtedness including bond investors insurance. Necessary assessments collected pursuant to this authority shall be collected under the same procedures provided in subdivision (a)(3). Assessments collected under this section may be assigned and pledged to or on behalf of the local development authority for the benefit of the holders of such indebtedness, in order to provide for the payment of the principal of, redemption premium, if any, and interest on such indebtedness, the costs of issuance, and the funding of any reserves and any other payments under the documents under which the indebtedness was incurred. In addition to the assessments provided for in this section, the association in its sole discretion may utilize assessments made under subdivision (a)(3), to service such indebtedness, if necessary. The association shall have no obligation to pay covered claims solely from the proceeds of bonds or notes issued under § 4-31-804 ; provided, that if the association may cause assessments to be made hereunder for such covered claims, and assigns and pledges such assessments to or on behalf of the local development authority as issuer of such indebtedness for the benefit of the holders of bonds or notes, the association may administer such covered claims and present valid covered claims for payment; (4) Sue or be sued, and such power to sue includes the power and right to intervene as a party before any court that has jurisdiction over an insolvent insurer as defined by this part; (5) Negotiate and become a party to such contracts as are necessary to carry out the purpose of this part; (6) Perform such other acts as are necessary or proper to effectuate the purpose of this part; and (7) 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) With respect to any suit involving the association: (1) Any action relating to or arising out of this part against the association shall be brought in a court in this state. Such court shall have exclusive jurisdiction over any action relating to or arising out of this part against the association; and (2) Exclusive venue in any action brought against the association is in the circuit or chancery court in Davidson County; provided, that the association may waive such venue as to a specific action.

Legislative History

Acts 1971, ch. 180, § 7; 1975, ch. 62, §§ 5, 6; 1977, ch. 203, § 3; T.C.A., § 56-4007; Acts 1995, ch. 240, § 2; 1999, ch. 48, §§ 3 - 6, 11.