Insurance Guaranty Association Act Revisions.-AB

GENERAL ASSEMBLY OF NORTH CAROLINA
SESSION 2025
H 1
HOUSE BILL 720

Short Title: Insurance Guaranty Association Act Revisions.-AB (Public)
Sponsors: Representatives Humphrey, Setzer, and Balkcom (Primary Sponsors).
For a complete list of sponsors, refer to the North Carolina General Assembly web site.
Referred to: Insurance, if favorable, Finance, if favorable, Rules, Calendar, and Operations of
the House
April 3, 2025
*H720-v-1*
A BILL TO BE ENTITLED 1
AN ACT ENACTING REVI SIONS TO THE INSURAN CE GUARANTY ASSOCIAT ION 2
ACT, AS RECOMMENDED BY THE DEPARTMENT OF INSURANCE. 3
The General Assembly of North Carolina enacts: 4
SECTION 1. G.S. 58-48-10 reads as rewritten: 5
"§ 58-48-10. Scope. 6
This Article shall apply to all kinds of direct insurance, but shall not be applicable to: 7
… 8
(5) Insurance Other than coverages that may be set forth in a cybersecurity 9
insurance policy, insurance of warranties or service contracts; 10
…." 11
SECTION 2. G.S. 58-48-20 reads as rewritten: 12
"§ 58-48-20. Definitions. 13
As used in this Article: 14
… 15
(4) Covered claim. – An unpaid claim, including one of unearned premiums, 16
which is in excess of fifty dollars ($50.00) and arises out of and is within the 17
coverage and not in excess of the applicable limits of an insurance policy to 18
which this Article applies as issued by an insurer, if that insurer if the policy 19
was issued by an insurer that becomes an insolvent insurer after the effective 20
date of this Article and (i) the claimant or insured is a resident of this State at 21
the time of the insured event; or (ii) the property from which the claim arises 22
is permanently located in this State. "Covered claim " includes claim 23
obligations that arose through the issuance of an insurance policy by a member 24
insurer, which are later allocated, transferred, merged into, novated, assumed 25
by, or otherwise made the sole responsibility of a member or nonmember 26
insurer if (i) the original member insurer has no remaining obligations on the 27
policy after the transfer, (ii) a final order of liquidation with a finding of 28
insolvency has been entered against the insurer that assumed the member 's 29
coverage obligations by a court of competent jurisdiction in the insurer's state 30
of domicile, (iii) the claim would have been a covered claim, as defined in this 31
subdivision, if the claim had remained the responsibility of the original 32
member insurer and the order of liquidation had been en tered against the 33
original member insurer, with the same claim submission date and liquidation 34
General Assembly Of North Carolina Session 2025
Page 2 House Bill 720-First Edition
date, and (iv) in cases where the member's coverage obligations were assumed 1
by a nonmember insurer, the transaction received prior regulatory or judicial 2
approval. "Covered claim" shall not include any amount awarded (i) as 3
punitive or exemplary damages; (ii) sought as a return of premium under any 4
retrospective rating plan; or (iii) due any reinsurer, insurer, insurance pool, or 5
underwriting association, as subr ogation or contribution recoveries or 6
otherwise. "Covered claim" also shall not include fines or penalties, including 7
attorneys' fees, imposed against an insolvent insurer or its insured or claims 8
of any claimant whose net worth exceeds fifty million dolla rs ($50,000,000) 9
on December 31 of the year preceding the date the insurer becomes insolvent. 10
(4a) Cybersecurity insurance. – Includes first and third-party coverage, in a policy 11
or endorsement, written on a direct, admitted basis by a member insurer for 12
losses and loss mitigation arising out of or relating to data privacy breaches, 13
unauthorized information network security intrusions, computer viruses, 14
ransomware, cyber extortion, identity theft, and similar exposures. 15
…." 16
SECTION 3. G.S. 58-48-35 reads as rewritten: 17
"§ 58-48-35. Powers and duties of the Association. 18
(a) The Association shall: 19
(1) Be obligated to the extent of the covered claims existing prior to the 20
determination of insolvency and arising within 30 days after the determination 21
of insolvency, or before the policy expiration date if less than 30 days after 22
the determination, or before the insured replaces the policy or causes its 23
cancellation, if he does so within 30 days of the determination. This obligation 24
includes only the amount of each covered claim that is in excess of fifty dollars 25
($50.00) and is less than five hundred thousand dollars ($500,000). However, 26
the Association shall pay the full amount of a covered claim for benefits under 27
a workers' compensation insurance coverage, and shall pay an amount not 28
exceeding ten thousand dollars ($10,000) per policy for a covered claim for 29
the return of unearned premium. In no event shall the Association be obligated 30
to pay an amount in excess of five hundred thousand dollars ($500,000) for 31
all first and third -party claims under a policy or endorsement providing, or 32
that is found to provide, cybersecurity insurance coverage and arising out of 33
or related to a single insured event, regardless of the number of claims made 34
or the number of c laimants. The Association has no obligation to pay a 35
claimant's covered claim, except a claimant's workers' compensation claim, if: 36
… 37
(4) Investigate claims brought against the Association and adjust, compromise, 38
settle, and pay covered claims to the extent of the Association's obligation and 39
deny all other claims and may review settlements, releases and judgments to 40
which the insolvent insurer or its insureds were parties to determine the extent 41
to which such settlements, releases and judgments may be prop erly 42
contested.claims. This requirement is subject to the following provisions: 43
a. When investigating, adjusting, compromising, or settling claims, the 44
Association may appoint, substitute, and direct legal counsel for the 45
defense of covered claims and appoint and direct other service 46
providers for covered services. 47
b. The Association may pay in any order that it deems reasonable, 48
including the payment of claims as t hey are received from the 49
claimants or in groups or categories of claims. 50
… 51
General Assembly Of North Carolina Session 2025
House Bill 720-First Edition Page 3
(8) Have the right to r eview and contest settlements, releases, compromises, 1
waivers, and judgments to which the insolvent insurer or its insureds were 2
parties prior to the entry of the order of liquidation. This right is subject to the 3
following provisions: 4
a. In addition to any defenses available to the insurer, t he Association 5
may assert any statutory defenses or rights of offset against any 6
settlement, release, compromise, or waiver executed by an insured or 7
the insurer or any judgment taken against the insured or the insurer. 8
b. The Association is not bound by a settlement, release, compromise, or 9
waiver executed by an insured or the insurer or any judgment entered 10
against an insured or the insurer by consent or through a failure to 11
exhaust all appeals if the settlement, release, compromise, waiver , or 12
judgment was: 13
1. Executed or enter ed within 120 days prior to the entry of an 14
order of liquidation, and the insured or the insurer did not use 15
reasonable care in entering into the settlement, release, 16
compromise, waiver , or judgment, or did not pursue all 17
reasonable appeals of an adverse judgment; or 18
2. Executed by or taken against an insured or the insurer based on 19
default, fraud, collusion, or the insurer's failure to defend. 20
c. If a court of competent jurisdiction find s that the Association is not 21
bound by a settlement, release, compromise, waiver , or judgment for 22
any of the reasons described in sub-subdivision b. of this subdivision, 23
the settlement, release, compromise, waiver , or judgment shall be set 24
aside, and the A ssociation shall be permitted to defend any covered 25
claim on the merits. The settlement, release, compromise, waiver , or 26
judgment may not be considered as evidence of liability or damages in 27
connection with any claim brought against the Association or any 28
other party under this Article. 29
d. Any covered claims arising from any judgment under any decision, 30
verdict, or finding based on the default of the insolvent insurer or its 31
failure to defend an insured shall, upon application and notice by the 32
Association, be vacated and set aside by the same court in which such 33
judgment, order, decision, verdict, or finding is entered , and the 34
Association either on its own behalf or on behalf of any insured or an 35
insolvent insurer shall be permitted to defend against such claim on 36
the merits. Any party who has obtained any such judgment or order 37
shall have the right, upon application and notice, to have the judgment 38
or order restored if within 90 days following the entry of the judgment 39
or order the Association has not notified such party and the court that 40
it intends to defend the matter on the merits. 41
…." 42
SECTION 4. G.S. 58-48-50 reads as rewritten: 43
"§ 58-48-50. Effect of paid claims. 44
… 45
(a1) The Association shall have the right to recover from the following persons the amount 46
of any "covered claim" paid and any and all expenses incurred, including attorneys' fees and costs 47
of defense, in connection with any claim against the person or the person's affiliate pursuant to 48
this Article: 49
(1) Any insured whose net worth on December 31 of the year next preceding the 50
date the insurer becomes insolvent exceeds fifty million dollars ($50,000,000) 51
General Assembly Of North Carolina Session 2025
Page 4 House Bill 720-First Edition
and whose liability obligations to other persons are satisfied in whole or in 1
part by payments under this Article; Article, provided that an insured's net 2
worth on that date shall be deemed to include the aggregate net worth of the 3
insured and all of its subsidiaries and affiliates as calculated on a consolidated 4
basis; or 5
…." 6
SECTION 5. G.S. 58-48-85 reads as rewritten: 7
"§ 58-48-85. Stay of proceedings; reopening of default judgments.proceedings. 8
All proceedings in which the insolvent insurer is a party or is obligated to defend a party in 9
any court or before any administrative agency or the North Carolina Industrial Commission shall 10
be stayed automatically for 120 days and such additional time thereafter as may be determined 11
by the court from the date the insolvency is determined or any ancillary proceedings are initiated 12
in this State, whichever is later, to permit proper defense by the Association of all pending causes 13
of action. Any party to any proceeding which is stayed pursuant to this section shall have the 14
right, upon application and notice, to seek a vacation or modification of such stay. Any covered 15
claims arising from any judgment under any decision, verdict or finding based on the default of 16
the insolvent insurer or its failure to defend an insured, shall, upon application and notice by the 17
Association be vacated and set aside by the same court in which such judgment, order, decision, 18
verdict, or finding is entered and the Association either on its own behalf or on behalf of any 19
insured or an insolvent insurer, shall be permitted to defend against such claim on the merits. 20
Any party who has obtained any such judgment or order shall have the right, upon application 21
and notice, to have the judgment or order restored if within 90 days following the entry of the 22
judgment or order the Association has not notified such party and the court that it intends to 23
defend the matter on the merits." 24
SECTION 6. This act is effective when it becomes law. 25