text:
123 F. 3d 75 - Varrone v. Bilotti
123 F3d 75 Varrone v. Bilotti
123 F.3d 75
Anthony VARRONE, Plaintiff-Appellee-Cross Appellant,
Michael BILOTTI; Cynthia Johnson; Bert Ross; Francisco
Berrios; Raymond R. Bara; John Does 1-10; Defendants,
John Matthews; Henrique Frett, Correction Lieutenant at
Arthur Kill; Thomas Eisenschmidt, Correction Captain at
Arthur Kill; Gerald A. Wells, Deputy Superintendent of
Security at Arthur Kill; Juan Ramos, Inspector General's
Office of the DOCS; Thomas Mansfield, Deputy Inspector
General of the DOCS; Brian F. Malone, Inspector General of
the DOCS; Defendants-Appellants-Cross Appellees.
Nos. 779, 1392, Dockets 96-2368(L), 96-2382(XAP).
Argued Feb. 19, 1997.
Decided Aug. 18, 1997.
Kevin J. Lambeson, Assistant Attorney General, New York City (Dennis C. Vacco, Attorney General of New York, on the brief), for Defendants-Appellants-Cross Appellees.
Thomas E. Butler, New York City (Chadbourne & Parke, Bernard W. McCarthy, Sankar Suryananayan, New York City, on the brief), for Plaintiff-Appellee-Cross Appellant.
Before: NEWMAN, KEARSE and FRIEDMAN*, Circuit Judges.
FRIEDMAN, Circuit Judge:
* A. In March 1989, Kings County Assistant District Attorney Eric Seidel, then Deputy Chief of the Narcotics Bureau, telephoned Brian Malone, Inspector General for the New York State Department of Correctional Services (the "Department") and told him that "he had received information from what he believed to be a reliable source that Anthony Varrone and Claire Varrone would be visiting Joseph Varrone, their father and husband, then an inmate at the Arthur Kill Correctional Facility ("Arthur Kill") in the near future and that, at such time, they would be bringing heroin into the facility." Seidel no longer remembers the source of this information, but stated that "the information either came from a person who was a confidential informant of ours or electronic surveillance," and "was reliable enough to be passed on to the Department of Corrections." Seidel did not tell Malone the source of the information, and Malone did not ask.
Upon reviewing the information in the Department's computers on Joseph Varrone, Malone learned that he was incarcerated for selling a controlled substance. Malone was aware that his office was investigating other alleged instances of drug smuggling into Arthur Kill. Malone directed his immediate subordinate, Deputy Inspector General Thomas Mansfield, to determine whether Joseph Varrone's wife or son had visited Arthur Kill on March 3, 1989. He also directed Mansfield to strip search Claire and Anthony Varrone on their next visits. Mansfield, who had no recollection about the details of what occurred, assigned the matter to Investigator Juan Ramos.
Ramos stated that, when given such a task, he would customarily conduct "some sort of background investigation." Although Ramos could not recall the details of his investigation, he remembered "at the very least" running a background check on Joseph Varrone and cross referencing all available information. Such a background check reveals the inmate's complete history, including the reason for the incarceration, as well as known co-defendants. A background check on Joseph Varrone would have disclosed that he was incarcerated for a drug-related crime, and that Anthony Varrone was a co-defendant with his father in the criminal case that resulted in Joseph Varrone's incarceration.
Ramos sent a memorandum to the Deputy Superintendent of Security at Arthur Kill, Gerald Wells, requesting that Wells ensure that any person seeking to visit Joseph Varrone submit to a strip search as a condition of visitation. Wells stated that he knew nothing about the information or its reliability, and that he "did absolutely nothing to implement the strip search order."
Wells delegated the matter to his immediate subordinate, Thomas Eisenschmidt, who had no specific memory of the strip search of Varrone. He ordered Henrique Frett, a lieutenant at Arthur Kill, to make the strip searches. Frett testified that he did not know the reason for the searches, but he directed Corrections Sergeant John Matthews to search Joseph Varrone's visitors.
Inmate Joseph Varrone was strip searched on March 8, 1989. On March 9, 1989, Claire Varrone agreed to a strip search as a condition of visiting her husband, and on March 10, 1989, Anthony Varrone similarly consented, and Matthews strip searched him. None of these searches uncovered any drugs.
B. Anthony Varrone (hereinafter "Varrone") filed a complaint in the United States District Court for the Eastern District of New York seeking damages under 42 U.S.C. § 1983 against the state officers for strip searching him. As finally amended, the complaint named as defendants the appellants Matthews, Ramos, Eisenschmidt, Wells, Mansfield, Malone and Frett. Varrone's suit subsequently was consolidated with similar actions filed by Joseph Varrone and Claire Varrone, but the district court dismissed the latter claims as untimely. Varrone v. Bilotti, 851 F.Supp. 54 (E.D.N.Y.1993).
Matthews moved for summary judgment on the basis of qualified immunity, which the district court denied. It held that, for purposes of qualified immunity, it was clearly established at the time that strip searches of prison visitors could be made only when based upon reasonable suspicion. Varrone v. Bilotti, 867 F.Supp. 1145 (E.D.N.Y.1994). The court stated that a visitor's signed consent to a search, which is a condition of visitation and hence involuntary, did not constitute a waiver of Fourth Amendment rights.
Both sides then cross moved for summary judgment--the defendants on the ground of qualified immunity and the plaintiff on the ground that no reasonable trier of fact could find that the defendants' search was based on reasonable suspicion. The district court denied both motions. Noting that it had previously held that, for purposes of qualified immunity, a correctional officer must have "reasonable suspicion" before making a prison visitor submit to a strip search, the court ruled that none of the officials was entitled to qualified immunity because none had assessed whether reasonable suspicion existed to search Varrone. With respect to Frett and Matthews, the officers who conducted the search, the court stated that their actions were ministerial and ruled that qualified immunity "is not available to government employees in the discharge of ministerial tasks."
The court also denied Varrone's motion for summary judgment, stating that "[t]he inquiry into whether an official's actions were objectively reasonable and, therefore, qualifiedly immune, is separate from the determination of whether the actions resulted in a violation of a plaintiff's constitutional rights." Because of unanswered questions about the reliability of the information on which the search was based, the court concluded that genuine issues of material fact existed regarding whether the correctional officers violated Varrone's rights.
The correctional officers appeal from the order denying them qualified immunity. To the extent it turns solely on issues of law, such an order is immediately appealable. See Behrens v. Pelletier, --- U.S. ----, 516 U.S. 299, ----, 116 S.Ct. 834, 841, 133 L.Ed.2d 773 (1996). Varrone cross-appeals from the denial of summary judgment in his favor, requesting this court to exercise pendent appellate jurisdiction.
A. The doctrine of qualified immunity generally provides government officials performing discretionary functions with a qualified immunity, shielding them from civil damages liability as long as their actions could reasonably have been thought consistent with the rights they are alleged to have violated. Somewhat more concretely, whether an official protected by qualified immunity may be held personally liable for an allegedly unlawful official action generally turns on the "objective legal reasonableness" of the action, assessed in light of the legal rules that were "clearly established" at the time it was taken.
Anderson v. Creighton, 483 U.S. 635, 638-639, 107 S.Ct. 3034, 3038-39, 97 L.Ed.2d 523 (1987) (citations omitted). See also Hathaway v. Coughlin, 37 F.3d 63, 67 (2d Cir.1994), cert. denied, 513 U.S. 1154, 115 S.Ct. 1108, 130 L.Ed.2d 1074 (1995). Since qualified immunity is an affirmative defense, the defendants bear the burden of showing that the challenged act was objectively reasonable in light of the law existing at that time. See Harlow v. Fitzgerald, 457 U.S. 800, 815, 102 S.Ct. 2727, 2736, 73 L.Ed.2d 396 (1982).
The district court here correctly stated that at the time of the strip search, under the "law of the United States Supreme Court, the Court of Appeals for the Second Circuit, and the other circuit courts of appeals," a search of prison visitors without reasonable suspicion violated clearly established law. Varrone v. Bilotti, 867 F.Supp. at 1153. The district court noted that although neither the Supreme Court nor this court had explicitly applied the reasonablesuspicion standard to strip searches of prison visitors, see id., "under certain circumstances, the absence of specific authority directly on point will not preclude a finding that the law was clearly established." Shabazz v. Coughlin, 852 F.2d 697, 701 (2d Cir.1988). The law was "clearly established" if the circuit's decisions "clearly foreshadow" a particular ruling on the issue. Id. Decisions of other circuits also may indicate whether the law was clearly established. See Weber v. Dell, 804 F.2d 796, 803-804 (2d Cir.1986) (relying upon decisions of other circuits in making a qualified immunity determination), cert. denied, 483 U.S. 1020, 107 S.Ct. 3263, 97 L.Ed.2d 762 (1987).
Prior to the strip search on March 10, 1989, three other circuits had established a "reasonable suspicion" standard for strip searches of prison visitors. See Blackburn v. Snow, 771 F.2d 556, 569 (1st Cir.1985); Thorne v. Jones, 765 F.2d 1270, 1277 (5th Cir.1985), cert. denied, 475 U.S. 1016, 106 S.Ct. 1198, 89 L.Ed.2d 313 (1986); Hunter v. Auger, 672 F.2d 668, 674 (8th Cir.1982). Decisions of this court also foreshadowed that standard. See Security and Law Enforcement Employees v. Carey, 737 F.2d 187, 205 (2d Cir.1984) (relying on Hunter v. Auger in applying the reasonable suspicion standard to strip searches of prison guards, by analogizing them to the prison visitors in Hunter). See also Weber, 804 F.2d at 804 (adopting the reasonable suspicion standard for strip searches of misdemeanor arrestees); Black v. Amico, 387 F.Supp. 88, 92 (W.D.N.Y.1974) (applying "real suspicion" test to prison visitor strip search). Accordingly, we agree with the district court that the law was clearly established that correctional officers needed reasonable suspicion to strip search prison visitors without violating their constitutional rights. The question, therefore, is whether the information the officers had when they directed and conducted the strip search of Varrone created a reasonable suspicion that he was bringing drugs into the prison.
"A 'reasonable suspicion' of wrongdoing is something stronger than a mere 'hunch,' but something weaker than probable cause." Wood v. Clemons, 89 F.3d 922, 929 (1st Cir.1996) (citations omitted). To establish reasonable suspicion, "prison officials must point to specific objective facts and rational inferences that they are entitled to draw from those facts in light of their experience." Hunter, 672 F.2d at 674. The standard requires "individualized suspicion, specifically directed to the person who is targeted for the strip search." Id. at 675. In determining whether reasonable suspicion existed, the factors that may be considered include: "(1) the nature of the tip or information; (2) the reliability of the informant; (3) the degree of corroboration; and (4) other factors contributing to suspicion or lack thereof." Security and Law Enforcement Employees, 737 F.2d at 205.
In making that determination, it is important to keep in mind that "[t]he day-to-day problems of administering and operating correctional facilities are demanding and complex and this reality must be accorded some weight by federal courts even when confronted with constitutional challenges." Id.; see also Bell v. Wolfish, 441 U.S. 520, 547, 99 S.Ct. 1861, 1878, 60 L.Ed.2d 447 (1979).
B. The information that Seidel gave Malone, coupled with the additional information Malone learned and had, very likely sufficed to provide reasonable suspicion that Varrone would attempt to bring drugs into Arthur Kill, and, in any event, it was objectively reasonable for Malone to believe that he was acting on the basis of reasonable suspicion which suffices to confer qualified immunity. See Doe v. Marsh, 105 F.3d 106, 109-10 (2d Cir.1997) (a government official is entitled to qualified immunity if it was objectively reasonable for him to believe that his actions did not violate an established right); Wachtler v. County of Herkimer, 35 F.3d 77, 81 (2d Cir.1994) (qualified immunity protects an official " 'if it was "objectively reasonable" for him to believe his acts were lawful' ") (quoting Magnotti v. Kuntz, 918 F.2d 364, 367 (2d Cir.1990) (citation omitted)). The information was given to Malone by an assistant district attorney who was deputy chief of the narcotics bureau. The information was precise, specific and detailed. It stated that Seidel had "received information from what he believed to be a reliable source" that Varrone and his mother would be visiting Joseph Varrone (his father and her husband) at Arthur Kill "in the near future" and that at that time they "would be bringing heroin into the facility." The information identified the smugglers by name, stated where and when they would commit the offense and specified the particular drug they would attempt to smuggle.
Upon checking the records, Malone discovered that Joseph Varrone was imprisoned for the sale of drugs. Malone also was aware that his office was investigating other alleged instances of drug smuggling into Arthur Kill.
Contrary to Varrone's contention, Malone thus did not rely solely upon a wholly uncorroborated "tip" in ordering that Varrone be strip searched the next time he visited his father at Arthur Kill. To the contrary, the specific information Malone had was sufficient to create reasonable suspicion that Varrone would attempt to smuggle heroin into Arthur Kill in the near future.
In concluding that Malone was not entitled to qualified immunity, the district court stressed that Malone himself had not made any independent investigation of the reliability of the informant or of the information Seidel had supplied. We reject any requirement that information about an impending crime cannot constitute reasonable suspicion unless the recipient of the information personally has independently investigated its reliability. The district court's requirement improperly would import into the standards governing reasonable suspicion the more stringent standards governing probable cause. As the Supreme Court has pointed out:
Reasonable suspicion is a less demanding standard than probable cause not only in the sense that reasonable suspicion can be established with information that is different in quantity or content than that required to establish probable cause, but also in the sense that reasonable suspicion can arise from information that is less reliable than that required to show probable cause.
Alabama v. White, 496 U.S. 325, 330, 110 S.Ct. 2412, 2416, 110 L.Ed.2d 301 (1990).
Varrone relies upon Daugherty v. Campbell, 33 F.3d 554 (6th Cir.1994), to support his contention that because Malone did not independently assess or investigate the reliability of the information Seidel gave him, that information was insufficient to create reasonable suspicion. That decision, which is not binding precedent in this court, is distinguishable.
In that case a prison corrections officer told the warden (Campbell) that Lenora Daugherty was smuggling drugs on her person into the prison where her husband was an inmate, when she visited him. The warden also received two letters--one anonymous and the other bearing the signature of a non-existent person--indicating that Daugherty was smuggling drugs into the prison. Relying solely on the information the corrections officer had supplied, the warden ordered that Daugherty be strip searched prior to visiting her husband. When she was so searched, no drugs were found.
Daugherty filed suit against the warden and others under 42 U.S.C. § 1983, alleging that the strip search violated her rights under the 4th and 14th Amendments. The district court granted summary judgment for the defendants on the 14th Amendment claim, holding that they were entitled to qualified immunity, and the jury found for the defendants on the 4th Amendment claim. Id. at 555.
A divided Sixth Circuit reversed. The court held that the warden's "reliance on a wholly uncorroborated tip is, under the facts on this case, insufficient to constitute reasonable suspicion." Id. at 557. "[W]e hold, as a matter of law, in this case, where no independent objective information existed, the information upon which Campbell relied was insufficient to warrant a strip search." Id.
In the present case, as we have shown, Malone acted on more than "a wholly uncorroborated tip" in ordering that Varrone be strip searched. Seidel, the assistant chief of the narcotics bureau, told Malone that the information supplied came from what "he believed to be a reliable source." There is no indication that the corrections officer in Daugherty provided similar attestation. In addition to the information Seidel provided, Malone ascertained that Joseph Varrone was incarcerated on a drug conviction and knew that his office was investigating other alleged instances of drug smuggling into Arthur Kill--two facts not present in Daugherty.
We conclude that here Malone, at a minimum, was objectively reasonable in believing that he had " 'reasonable grounds for suspecting' that a search of a particular person w[ould] reveal the particular items sought." Id. at 560 (dissenting opinion, citation omitted). Malone's decision to order that Varrone be strip searched on his next visit to his father was protected by qualified immunity.
C. After Malone obtained the foregoing information, he instructed his immediate subordinate, Deputy Inspector General Mansfield, to strip search Varrone on his next visit to Arthur Kill. Mansfield assigned the matter to investigator Ramos, who made a background check on Joseph Varrone that would have disclosed that his son, the appellee Varrone, was a co-defendant with his father in the drug case that resulted in Joseph Varrone's imprisonment. Ramos then requested Wells, the deputy superintendent of security at Arthur Kill, to strip-search anyone seeking to visit Joseph Varrone. Wells delegated the strip-search instruction to his immediate subordinate, Eisenschmidt, who in turn delegated the order to officers Frett and Matthews, who conducted the strip search.
Except for the background check on Joseph Varrone that Ramos made, none of these officers did anything more than pass on the order to strip search Joseph Varrone's visitors and, in the case of Frett and Matthews, execute the order. None of them attempted to determine the basis for the order or the reliability of the information upon which it was based.
The district court held that the first four of these officials--Mansfield, Ramos, Wells and Eisenschmidt--were not entitled to qualified immunity because they had not independently investigated the basis for the strip search order and the reliability of the information upon which it was based; and that Frett and Matthews, who conducted the actual strip search, were not entitled to qualified immunity because they performed only a ministerial act that involved no exercise of discretion. We disagree with both rulings.
1. As we hold, the information Malone possessed gave him a reasonable basis for believing that there was reasonable suspicion that Varrone would attempt to smuggle heroin into Arthur Kill when he visited his father there and gave Malone qualified immunity for his decision to direct that Varrone be strip searched. Since the four subordinate officers were merely carrying out Malone's instruction and that of their immediate superior when they ordered the strip search, they were entitled to the same immunity Malone had. There is no claim that the order was facially invalid or obviously illegal; prison strip searches are not uncommon. To require the four officers independently to investigate the basis for the apparently valid order they received, as a condition to having the same qualified immunity that the source of the order (Malone) had, would create serious problems in the administration of a prison and be detrimental to the maintenance of proper order and discipline there.
In view of the problems and realities that face prison officers, including dealing with drugs in those institutions, and the deference and discretion given those officers' day-to-day decisions relating to prison safety, security and discipline, Bell, 441 U.S. at 547, 99 S.Ct. at 1878 each of these officials had qualified immunity for carrying out his supervisor's directive, even though he did not independently investigate the basis and reason for the order. See Illinois v. Andreas, 463 U.S. 765, 771-72 n. 5, 103 S.Ct. 3319, 3324 n. 5, 77 L.Ed.2d 1003 (1983) ("[W]here law enforcement authorities are cooperating in an investigation ... the knowledge of one is presumed shared by all."); Whiteley v. Warden, Wyo. State Penitentiary, 401 U.S. 560, 568, 91 S.Ct. 1031, 1036, 28 L.Ed.2d 306 (1971) ("[P]olice officers called upon to aid other officers in executing arrest warrants are entitled to assume that the officers requesting aid [had properly determined the existence of] probable cause."). See also Wood, 89 F.3d at 930 (superintendent of a correctional facility may rely on the investigations of other corrections officers without having to conduct an independent inquiry). Each of these four officers was protected by qualified immunity in directing his subordinate to strip search Varrone.
2. The district court held that the two officers who actually conducted the search, Frett and Matthews, did not have qualified immunity because their actions were ministerial and did not involve any exercise of discretion. The court relied on cases holding that qualified immunity covers only discretionary acts of government officials. See, e.g., Harlow v. Fitzgerald, 457 U.S. 800, 816, 102 S.Ct. 2727, 2737, 73 L.Ed.2d 396 (1982). That general principle, however, cannot properly be applied here to deny those two corrections officers qualified immunity.
The continued validity of the ministerial-discretionary function distinction in determining qualified immunity has been questioned. See Gagne v. City of Galveston, 805 F.2d 558, 559-60 (5th Cir.1986) (the ministerial duty exception to qualified immunity is extremely narrow and police officers have such immunity for all actions performed in the course of their official duties), cert. denied, Gagne v. Putnal, 483 U.S. 1021, 107 S.Ct. 3266, 97 L.Ed.2d 764 (1987); Coleman v. Frantz, 754 F.2d 719, 727 (7th Cir.1985) (noting the difficulty in applying the ministerial-discretionary distinction and stating that to determine immunity based on such a distinction "would do little to forward the purposes of immunity"). Both the Supreme Court and this court, however, have continued to articulate the distinction. See Davis v. Scherer, 468 U.S. 183, 194 n. 14, 104 S.Ct. 3012, 3020, 82 L.Ed.2d 139 (1984); Harlow, 457 U.S. at 816, 102 S.Ct. at 2737; Walz v. Smithtown, 46 F.3d 162, 169 (2d Cir.1995). We need not here decide whether the distinction continues to have validity because we conclude that even if these two subordinate officers performed solely a ministerial function in conducting the strip search, they still have qualified immunity for carrying out the order, not facially invalid, issued by a superior officer who is protected by qualified immunity.
The reasons set forth in Part II(B)(1) for granting qualified immunity to the four officers are equally applicable to the two subordinate officers who conducted the strip search. Realistically, those two officers had no choice but to carry out the order they received, which was facially valid. It would be anomalous to provide qualified immunity to the higher ranking officers who ordered the strip search, but to deny it to the subordinates who carried out the order. See Williamson v. City of Virginia Beach, 786 F.Supp. 1238, 1260-61 n. 28 (E.D.Va.1992) (eliminating the ministerial-discretionary distinction for qualified immunity in Section 1983 actions "remedies the perverse notion that high ranking officials with discretionary and policy-making powers (and likely access to counsel) are immune from suit when similar immunity from suit is unavailable to lowly functionaries who have little, if any, choice in carrying out their ministerial functions"), aff'd., 991 F.2d 793 (4th Cir.1993) (table).
Those two subordinate officers are entitled to qualified immunity for conducting the strip search of Varrone pursuant to the facially lawful order of their superior officer, even if making the search involved the performance of a ministerial function.
In view of our decision that all the appellants are entitled to qualified immunity, the issue raised by Varrone's cross appeal--whether the district court should have granted him summary judgment instead of setting the case for trial--is moot. Moreover, it is doubtful whether we would have jurisdiction over the cross-appeal. See Swint v. Chambers County Comm'n, 514 U.S. 35, 43-51, 115 S.Ct. 1203, 1208-12, 131 L.Ed.2d 60 (1995). The cross-appeal will be dismissed.
The order of the district court denying the defendants' motion for summary judgment based on qualified immunity is reversed, and the case is remanded to that court to dismiss the complaint on that ground. The cross appeal is dismissed as moot.
Daniel M. Friedman, of the United States Court of Appeals for the Federal Circuit, sitting by designation


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Victoria Cross Heroes
2006 marks the 150th anniversary of Britain's most prestigious medal for courage in action and this book tells the stories of over 160 men whose bravery has earned them the Victoria Cross.
TV Series & DVD
The Victoria Cross
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Lord Ashcroft writes in The Sunday Telegraph of his 50 great heroes
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50 great heroes: 1-25
50 great heroes: 26-50
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Please visit www.georgecrossheroes.com for more information.
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Lord Ashcroft tells Olga Craig of the touching stories of valour behind his �m medal collection, to be unveiled at the Imperial War Museum. Click here to read the full story.
Lord Ashcroft on the romance and tales of exceptional valour
Courage is difficult to understand and impossible to measure. In an article for the Mail on Sunday Lord Ashcroft explores what it is that makes people willing to risk their lives for others. To read the full article please click here.
Chavasse Double VC joins the Ashcroft VC Collection
The Great War's only double VC, awarded to Captain Noel Chavasse, joins the Ashcroft VC Collection. To read the full story from The Sunday Telegraph please click here.
A personal tribute to Lt Col Eric Wilson VC
Click here to read Lord Ashcroft's personal tribute to Lt Col Eric Wilson VC published in Medal News in February 2009.
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For more information please click here or visit www.specialforcesheroes.com.
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In an interview with BBC London News Lord Ashcroft talks of his support for the forthcoming Help for Heroes Rugby Challenge at Twickenham on 20 September 2008. To watch the full news clip please click here.
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The collection, which was started 22 years ago, spans every force - Army, Navy and RAF - and Lord Ashcroft's donation will enable them all to be seen at the Imperial War Museum in a new gallery which opens in autumn 2010. To read the full article please click here.
Channel 4 report on Lord Ashcroft's Victoria Cross collection
To watch the full report on the largest Victoria Cross collection in the world please click here.
Lord Ashcroft's Victoria Cross collection - the largest in the world - is to go on public display following his �million donation to the Imperial War Museum
The world's largest collection of Victoria Crosses (VCs), belonging to the Michael A Ashcroft Trust, is to be displayed publicly for the first time in a new gallery at Imperial War Museum London. To read the full press release please click here.
Ashcroft and Dallaglio pledge support to Help for Heroes
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Lord Ashcroft has offered an additional reward for information leading to the apprehension and conviction of the New Zealand medal thieves. Click here for full story.
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Lord Ashcroft, whose reward led to the return of the Country's stolen bravery medals, visits New Zealand. Click here for full story.
Why 24 year old Royal Marine should receive the VC
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To visit site and see full story please click here.
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redpajama_set_name: RedPajamaCommonCrawl


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Effective Advocacy
for our Natural Resources
Law Office of Martin E. Levin, Massachusetts Environmental Law
Environmental and other complex legal matters
10 Speen Street, 3rd Floor
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Bouchard Barge B120 Oil Spill, Buzzards Bay, MA
On April 27, 2003, the Bouchard Barge B120 ran aground on a well-marked reef in Buzzards Bay, spilling as much as 98,000 gallons of fuel oil into the tidal waters off southeastern Massachusetts. Over the next two weeks, shoreline homeowners found the oil washing ashore. Throughout the summer that followed, hundreds of privately contracted cleanup workers, many with backhoes and dump trucks, fanned out along the affected beaches to remove the oiled sand and rocks. The spill and ensuing cleanup activities disrupted hundreds of homeowners' use and enjoyment of their beach properties throughout the summer and, in some cases, for several years after.
A group of the homeowners decided to vindicate their right to be compensated for damage done to their properties. They retained Martin Levin to investigate and then pursue their potential claims. Over vigorous opposition from Bouchard, Mr. Levin won the first certification of an environmental class action in Massachusetts, successfully tried the court-ordered "test case" before a Plymouth County jury, and ultimately won a $12.4 million settlement on behalf of more than a thousand homeowners. Over 99% of the class members made claims, receiving compensation that ranged from an average of over $500 to an average of over $15,000, depending on the circumstances of their property damage.
In 2012, the Massachusetts Lawyers Weekly named Martin Levin one of its Lawyers of the Year for his work on behalf of the homeowners. Read article.
About Martin E. Levin
Recognized as both a "SuperLawyer" and "Lawyer of the Year" for his work as an environmental lawyer, Martin E. Levin has more than thirty years of government and private practice experience handling environmental and other complex legal matters.
Learn more about Martin E. Levin >>
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(a) Within 60 days after the original effective date of this article, all insurers, including reciprocal insurers, admitted to transact insurance in this state of any or all of the following classes only in accordance with the provisions of Chapter 1 (commencing with Section 100) of Part 1 of this division: fire (see Section 102), marine (see Section 103), plate glass (see Section 107), liability (see Section 108), workers' compensation (see Section 109), common carrier liability (see Section 110), boiler and machinery (see Section 111), burglary (see Section 112), sprinkler (see Section 114), team and vehicle (see Section 115), automobile (see Section 116), aircraft (see Section 118), and miscellaneous (see Section 120), shall establish the California Insurance Guarantee Association (the association); provided, however, this article shall not apply to the following classes or kinds of insurance: life and annuity (see Section 101), title (see Section 104), fidelity or surety including fidelity or surety bonds, or any other bonding obligations (see Section 105), disability or health (see Section 106), credit (see Section 113), mortgage guaranty, insolvency or legal (see Section 119), financial guaranty or other forms of insurance offering protection against investment risks (see Section 124), the ocean marine portion of any marine insurance or ocean marine coverage under any insurance policy including the following: the Jones Act (46 U.S.C. Sec. 688), the Longshore and Harbor Workers' Compensation Act (33 U.S.C. Sec. 901 et seq.), or any other similar federal statutory enactment, or any endorsement or policy affording protection and indemnity coverage, or reinsurance as defined in Section 620, or fraternal fire insurance written by associations organized and operating under Sections 9080 to 9103, inclusive. Any insurer admitted to transact only those classes or kinds of insurance excluded from this article shall not be a member insurer of the association. Each insurer admitted to transact a class of insurance included in this article, including the State Compensation Insurance Fund, as a condition of its authority to transact insurance in this state, shall participate in the association whether established voluntarily or by order of the commissioner after the elapse of 60 days following the original effective date of this article in accordance with rules to be established as provided in this article. It shall be the purpose of the association to provide for each member insurer insolvency insurance as defined in Section 119.5.
(b) The association shall be managed by a board of governors, composed of nine member insurers, each of which shall be appointed by the commissioner to serve initially for terms of one, two, or three years and thereafter for three-year terms so that three terms shall expire each year on December 31, and shall continue in office until his or her successor shall be appointed and qualified. At least five members of the board shall be domestic insurers. At least three of the members shall be stock insurers, and at least three shall be nonstock insurers. The nine members shall be representative, as nearly as possible, of the classes of insurance and of the kinds of insurers covered by this article. In case of a vacancy for any reason on the board, the commissioner shall appoint a member insurer to fill the unexpired term. In addition to the nine member insurers, the membership of the board shall also include one public member appointed by the President pro Tempore of the Senate, one public member appointed by the Speaker of the Assembly, one business member appointed by the commissioner, and one labor member appointed by the commissioner.
(c) The association shall adopt a plan of operations, and any amendments thereto, not inconsistent with the provisions of this article, necessary to assure the fair, reasonable, and equitable manner of administering the association, and to provide for other matters as are necessary or advisable to implement the provisions of this article. The plan of operations and any amendments thereto shall be subject to prior written approval by the commissioner. All members of the association shall adhere to the plan of operation.
(d) If for any reason the association fails to adopt a suitable plan of operation within 90 days following the original effective date of this article, or if at any time thereafter the association fails to adopt suitable amendments to the plan of operation, the commissioner shall after hearing adopt and promulgate reasonable rules as are necessary or advisable to effectuate the provisions of this chapter. These rules shall continue in force until modified by the commissioner after hearing or superseded by a plan of operation, adopted by the association and approved by the commissioner.
(e) In accordance with its plan of operation, the association may designate one or more of its members as a servicing facility, but a member may decline this designation. Each servicing facility shall be reimbursed by the association for all reasonable expenses it incurs and for all payments it makes on behalf of the association. Each servicing facility shall have authority to perform any functions of the association that the board of governors lawfully may delegate to it and to do so on behalf of and in the name of the association. The designation of servicing facilities shall be subject to the approval of the commissioner.
(1) The issuance of notes, bonds, or debentures, or the establishment of a special purpose trust or other entity, solely for the purpose of facilitating a financing.
(2) The securing of that borrowing or those notes, bonds, or debentures by pledging or granting liens or mortgages, or by otherwise encumbering its real or personal property, including, but not limited to, premiums levied under Section 1063.5.
(g) The association, either in its own name or through servicing facilities, may be sued and may use the courts to assert or defend any rights the association may have by virtue of this article as reasonably necessary to fully effectuate the provisions thereof.
(h) The association shall have the right to intervene as a party in any proceeding instituted pursuant to Section 1016 wherein liquidation of a member insurer as defined in Section 1063.1 is sought.
(i) (1) The association shall have an annual audit of its financial condition conducted by an independent certified public accountant. The audit shall be conducted, to the extent possible, in accordance with generally accepted auditing standards (GAAS) and the report of the audit shall be submitted to the commissioner.
(2) The association shall annually audit at least one-third of the service companies retained by the association to adjust claims of insolvent insurers. The audits shall (A) assure that all covered claims are being investigated, adjusted, and paid in accordance with customary industry standards and practices and all applicable statutes, rules, and regulations, and (B) examine the management and supervisory systems overseeing the claims functions. The audits shall be conducted by the association or an independent auditor, provided that the three largest service companies, as measured by the number of claims processed for the association during the previous three fiscal years, shall be audited by an independent auditor at least once every three years. The association shall implement systems to retain independent auditing firms for the purpose of this paragraph, provided that no one firm is designated or utilized as an exclusive provider. Audits conducted pursuant to this paragraph shall be submitted annually to the commissioner for review.
(j) The commissioner shall examine the association to the same extent as, and in accordance with, the requirements of Article 4 (commencing with Section 729) of Chapter 1 of Part 2 of Division 1, which sets forth the examination requirements applicable to admitted insurers. A copy of the examination report shall be filed with the Chairpersons of the Senate and Assembly Committees on Insurance no later than December 31 of the year the report is completed.
(a) "Member insurer" means an insurer required to be a member of the association in accordance with subdivision (a) of Section 1063, except and to the extent that the insurer is participating in an insolvency program adopted by the United States government.
(b) "Insolvent insurer" means an insurer that was a member insurer of the association, consistent with paragraph (11) of subdivision (c), either at the time the policy was issued or when the insured event occurred, and against which an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction, or, in the case of the State Compensation Insurance Fund, if a finding of insolvency is made by a duly enacted legislative measure.
(A) Imposed by law and within the coverage of an insurance policy of the insolvent insurer.
(B) Which were unpaid by the insolvent insurer.
(C) Which are presented as a claim to the liquidator in the state of domicile of the insolvent insurer or to the association on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings.
(D) Which were incurred prior to the date coverage under the policy terminated and prior to, on, or within 30 days after the date the liquidator was appointed.
(E) For which the assets of the insolvent insurer are insufficient to discharge in full.
(F) In the case of a policy of workers' compensation insurance, to provide workers' compensation benefits under the workers' compensation law of this state.
(G) In the case of other classes of insurance if the claimant or insured is a resident of this state at the time of the insured occurrence, or the property from which the claim arises is permanently located in this state.
(2) "Covered claims" also includes the obligations assumed by an assuming insurer from a ceding insurer where the assuming insurer subsequently becomes an insolvent insurer if, at the time of the insolvency of the assuming insurer, the ceding insurer is no longer admitted to transact business in this state. Both the assuming insurer and the ceding insurer shall have been member insurers at the time the assumption was made. "Covered claims" under this paragraph shall be required to satisfy the requirements of subparagraphs (A) to (G), inclusive, of paragraph (1), except for the requirement that the claims be against policies of the insolvent insurer. The association shall have a right to recover any deposit, bond, or other assets that may have been required to be posted by the ceding company to the extent of covered claim payments and shall be subrogated to any rights the policyholders may have against the ceding insurer.
(A) Life, annuity, health, or disability insurance.
(B) Mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment risks.
(C) Fidelity or surety insurance including fidelity or surety bonds, or any other bonding obligations.
(F) Ocean marine insurance or ocean marine coverage under an insurance policy including claims arising from the following: the Jones Act (46 U.S.C. Secs. 30104 and 30105), the Longshore and Harbor Workers' Compensation Act (33 U.S.C. Sec. 901 et seq.), or any other similar federal statutory enactment, or an endorsement or policy affording protection and indemnity coverage.
(G) Any claims servicing agreement or insurance policy providing retroactive insurance of a known loss or losses, except a special excess workers' compensation policy issued pursuant to subdivision (c) of Section 3702.8 of the Labor Code that covers all or any part of workers' compensation liabilities of an employer that is issued, or was previously issued, a certificate of consent to self-insure pursuant to subdivision (b) of Section 3700 of the Labor Code.
(4) "Covered claims" does not include any obligations of the insolvent insurer arising out of any reinsurance contracts, nor any obligations incurred after the expiration date of the insurance policy or after the insurance policy has been replaced by the insured or canceled at the insured's request, or after the insurance policy has been canceled by the liquidator, nor any obligations to a state or to the federal government.
(5) "Covered claims" does not include any obligations to insurers, insurance pools, or underwriting associations, nor their claims for contribution, indemnity, or subrogation, equitable or otherwise, except as otherwise provided in this chapter.
An insurer, insurance pool, or underwriting association may not maintain, in its own name or in the name of its insured, a claim or legal action against the insured of the insolvent insurer for contribution, indemnity, or by way of subrogation, except insofar as, and to the extent only, that the claim exceeds the policy limits of the insolvent insurer's policy. In those claims or legal actions, the insured of the insolvent insurer is entitled to a credit or setoff in the amount of the policy limits of the insolvent insurer's policy, or in the amount of the limits remaining, where those limits have been diminished by the payment of other claims.
(6) "Covered claims," except in cases involving a claim for workers' compensation benefits or for unearned premiums, does not include a claim in an amount of one hundred dollars ($100) or less, nor that portion of a claim that is in excess of any applicable limits provided in the insurance policy issued by the insolvent insurer.
(7) "Covered claims" does not include that portion of a claim, other than a claim for workers' compensation benefits, that is in excess of five hundred thousand dollars ($500,000).
(8) "Covered claims" does not include any amount awarded as punitive or exemplary damages, nor any amount awarded by the Workers' Compensation Appeals Board pursuant to Section 5814 or 5814.5 of the Labor Code because payment of compensation was unreasonably delayed or refused by the insolvent insurer.
(9) "Covered claims" does not include (A) a claim to the extent it is covered by any other insurance of a class covered by this article available to the claimant or insured or (B) a claim by a person other than the original claimant under the insurance policy in his or her own name, his or her assignee as the person entitled thereto under a premium finance agreement as defined in Section 673 and entered into prior to insolvency, his or her executor, administrator, guardian, or other personal representative or trustee in bankruptcy, and does not include a claim asserted by an assignee or one claiming by right of subrogation, except as otherwise provided in this chapter.
(10) "Covered claims" does not include any obligations arising out of the issuance of an insurance policy written by the separate division of the State Compensation Insurance Fund pursuant to Sections 11802 and 11803.
(11) "Covered claims" does not include any obligations of the insolvent insurer arising from a policy or contract of insurance issued or renewed prior to the insolvent insurer's admission to transact insurance in the State of California.
(12) "Covered claims" does not include surplus deposits of subscribers as defined in Section 1374.1.
(13) "Covered claims" shall also include obligations arising under an insurance policy written to indemnify a permissibly self-insured employer pursuant to subdivision (b) or (c) of Section 3700 of the Labor Code for its liability to pay workers' compensation benefits in excess of a specific or aggregate retention. However, for purposes of this article, those claims shall not be considered workers' compensation claims and therefore are subject to the per-claim limit in paragraph (7), and any payments and expenses related thereto shall be allocated to category (c) for claims other than workers' compensation, homeowners, and automobile, as provided in Section 1063.5.
These provisions shall apply to obligations arising under a policy as described herein issued to a permissibly self-insured employer or group of self-insured employers pursuant to Section 3700 of the Labor Code and notwithstanding any other provision of this code, those obligations shall be governed by this provision in the event that the Self-Insurers' Security Fund is ordered to assume the liabilities of a permissibly self-insured employer or group of self-insured employers pursuant to Section 3701.5 of the Labor Code. The provisions of this paragraph apply only to insurance policies written to indemnify a permissibly self-insured employer or group of self-insured employers under subdivision (b) or (c) of Section 3700 of the Labor Code, for its liability to pay workers' compensation benefits in excess of a specific or aggregate retention, and this paragraph does not apply to special excess workers' compensation insurance policies unless issued pursuant to authority granted in subdivision (c) of Section 3702.8 of the Labor Code, and as provided for in subparagraph (G) of paragraph (3). In addition, this paragraph does not apply to any claims servicing agreement or insurance policy providing retroactive insurance of a known loss or losses as are excluded in subparagraph (G) of paragraph (3).
(A) If the benefits paid on the claim exceed the specific or aggregate retention, and the policy requires the insurer to defend and adjust the claim, the California Insurance Guarantee Association (CIGA) shall be solely responsible for adjusting and defending the claim, and shall make all payments due under the claim, subject to the limitations and exclusions of this article with regard to covered claims. As to each claim subject to this paragraph, notwithstanding any other provisions of this code or the Labor Code, and regardless of whether the amount paid by CIGA is adequate to discharge a claim obligation, neither the self-insured employer, group of self-insured employers, nor the Self-Insurers' Security Fund shall have any obligation to pay benefits over and above the specific or aggregate retention, except as provided in this subdivision.
(B) If the benefits paid on the claim exceed the specific or aggregate retention, and the policy does not require the insurer to defend and adjust the claim, the permissibly self-insured employer or group of self-insured employers, or the Self-Insurers' Security Fund, shall not have any further payment obligations with respect to the claim, but shall continue defending and adjusting the claim, and shall have the right, but not the obligation, in any proceeding to assert all applicable statutory limitations and exclusions as contained in this article with regard to the covered claim. CIGA shall have the right, but not the obligation, to intervene in any proceeding where the self-insured employer, group of self-insured employers, or the Self-Insurers' Security Fund is defending a claim and shall be permitted to raise the appropriate statutory limitations and exclusions as contained in this article with respect to covered claims. Regardless of whether the self-insured employer or group of self-insured employers, or the Self-Insurers' Security Fund, asserts the applicable statutory limitations and exclusions, or whether CIGA intervenes in a proceeding, CIGA shall be solely responsible for paying all benefits due on the claim, subject to the exclusions and limitations of this article with respect to covered claims. As to each claim subject to this paragraph, notwithstanding any other provision of the Insurance Code or the Labor Code and regardless of whether the amount paid by CIGA is adequate to discharge a claim obligation, neither the self-insured employer, group of self-insured employers, nor the Self-Insurers' Security Fund, shall have an obligation to pay benefits over and above the specific or aggregate retention, except as provided in this subdivision.
(C) In the event that the benefits paid on the covered claim exceed the per-claim limit in paragraph (7), the responsibility for paying, adjusting, and defending the claim shall be returned to the permissibly self-insured employer or group of employers, or the Self-Insurers' Security Fund.
(d) "Admitted to transact insurance in this state" means an insurer possessing a valid certificate of authority issued by the department.
(e) "Affiliate" means a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an insolvent insurer on December 31 of the year next preceding the date the insurer becomes an insolvent insurer.
(f) "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control is presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10 percent or more of the voting securities of any other person. This presumption may be rebutted by showing that control does not in fact exist.
(g) "Claimant" means an insured making a first party claim or a person instituting a liability claim. However, no person who is an affiliate of the insolvent insurer may be a claimant.
(h) "Ocean marine insurance" includes marine insurance as defined in Section 103, except for inland marine insurance, as well as any other form of insurance, regardless of the name, label, or marketing designation of the insurance policy, that insures against maritime perils or risks and other related perils or risks, that are usually insured against by traditional marine insurance such as hull and machinery, marine builders' risks, and marine protection and indemnity. Those perils and risks insured against include, without limitation, loss, damage, or expense or legal liability of the insured arising out of or incident to ownership, operation, chartering, maintenance, use, repair, or construction of a vessel, craft, or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness, or death for loss or damage to the property of the insured or another person.
(i) "Unearned premium" means that portion of a premium as calculated by the liquidator that had not been earned because of the cancellation of the insolvent insurer's policy and is that premium remaining for the unexpired term of the insolvent insurer's policy. "Unearned premium" does not include any amount sought as return of a premium under a policy providing retroactive insurance of a known loss or return of a premium under a retrospectively rated policy or a policy subject to a contingent surcharge or a policy in which the final determination of the premium cost is computed after expiration of the policy and is calculated on the basis of actual loss experienced during the policy period.
(a) The association shall pay and discharge covered claims and, in connection therewith, pay for or furnish loss adjustment services and defenses of claimants when required by policy provisions. It may do so either directly by itself or through a servicing facility or through a contract for reinsurance and assumption of liabilities by one or more member insurers or through a contract with the liquidator, upon terms satisfactory to the association and to the liquidator, under which payments on covered claims would be made by the liquidator using funds provided by the association. Alternatively, the association may, with the express approval of the commissioner, reinsure with, or transfer liabilities to, a California admitted and authorized reinsurer or other reinsurer approved by the commissioner to limit or eliminate adverse development, to stabilize or limit the need for assessments, or to reduce its potential ultimate liability for covered claims, provided the association retains the ultimate responsibility to the policyholder or beneficiary for payment of claims covered by the reinsurance agreement. A reinsurance agreement or transfer of liabilities shall be paid for using the association's available funds from one of its accounts and shall not be charged to administrative expense or allocated to any liquidation estate. The payment and discharge of covered claims shall be undertaken by the association, either directly or through an authorized third-party administrator. Recoveries from a reinsurance agreement or transfer of liabilities shall solely be the property of the association, shall not inure to the benefit of any liquidation estate, and shall be paid to the association account from which the payment for the reinsurance or transfer of liabilities was made.
(A) Appear, defend, and appeal a claim in a court of competent jurisdiction.
(B) Receive notice of, investigate, adjust, compromise, settle, and pay a covered claim.
(C) Investigate, handle, and deny a noncovered claim.
(2) The association shall have no cause of action against the insureds of the insolvent insurer for any sums it has paid out, except as provided by this article.
(3) Paragraph (2) does not limit the association's right to pursue unpaid reimbursements owed by an employer pursuant to a workers' compensation insurance policy with a deductible if the employer was obligated to reimburse the insurer for benefits payments and related expenses paid by the insurer or the association from a special deposit or from other association funds pursuant to the terms of the policy and related agreements.
(c) (1) If damages against uninsured motorists are recoverable by the claimant from his or her own insurer, the applicable limits of the uninsured motorist coverage shall be a credit against a covered claim payable under this article. A person having a claim that may be recovered under more than one insurance guaranty association or its equivalent shall seek recovery first from the association of the place of residence of the insured, except that if it is a first-party claim for damage to property with a permanent location, he or she shall seek recovery first from the association of the permanent location of the property, and if it is a workers' compensation claim, he or she shall seek recovery first from the association of the residence of the claimant. A recovery under this article shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. A member insurer may recover in subrogation from the association only one-half of any amount paid by that insurer under uninsured motorist coverage for bodily injury or wrongful death (and nothing for a payment for anything else), in those cases where the injured person insured by such an insurer has proceeded under his or her uninsured motorist coverage on the ground that the tortfeasor is uninsured as a result of the insolvency of his or her liability insurer (an insolvent insurer as defined in this article), provided that the member insurer shall waive all rights of subrogation against the tortfeasor. An amount paid a claimant in excess of the amount authorized by this section may be recovered by action, or other proceeding, brought by the association.
(2) A claimant having collision coverage on a loss that is covered by the insolvent company's liability policy shall first proceed against his or her collision carrier. That claimant or the collision carrier, if it is a member of the association, does not have the right to sue or continue a suit against the insured of the insolvent insurance company for that collision damage.
(d) The association shall have the right to recover from any person who is an affiliate of the insolvent insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under this article the amount of any covered claim and allocated claims expense paid on behalf of that person pursuant to this article.
(e) A person having a claim or legal right of recovery under any governmental insurance or guaranty program that is also a covered claim, shall be required to first exhaust his or her right under the program. An amount payable on a covered claim shall be reduced by the amount of any recovery under the program.
(f) "Covered claims" for unearned premium by lenders under insurance premium finance agreements as defined in Section 673 shall be computed as of the earliest cancellation date of the policy pursuant to Section 673.
(g) "Covered claims" shall not include any judgments against or obligations or liabilities of the insolvent insurer or the commissioner, as liquidator, or otherwise resulting from alleged or proven torts, nor shall any default judgment or stipulated judgment against the insolvent insurer, or against the insured of the insolvent insurer, be binding against the association.
(h) "Covered claims" shall not include any loss adjustment expenses, including adjustment fees and expenses, attorney's fees and expenses, court costs, interest, and bond premiums, incurred before the appointment of a liquidator.
(a) The board may, upon majority vote, make recommendations to the commissioner on matters pertaining to regulation for solvency.
(b) The board may prepare a report on the history and causes of any member insurer insolvency in which the association was obligated to pay covered claims, based on the information available to the association, and submit that report along with any recommendations resulting therefrom to the commissioner.
(c) The board may request the Self-Insurers' Security Fund to prepare, and the Self-Insurers' Security Fund may provide to the board, a report identifying the aggregate amount of liability, including the estimated exposure for every insurance carrier admitted to transact workers' compensation insurance in this state, under all specific excess workers' compensation policies in existence for a given period in this state as reported by the private self-insured employers to the Director of Industrial Relations in the annual reports submitted pursuant to Section 3702.2 of the Labor Code.
(a) Insureds entitled to the protection of this article shall cooperate with the association in accordance with their policies in the same manner as they would have been required to cooperate with their insurer if it were not in liquidation and shall be deemed to have assigned to the association any right to make claim against the liquidator for a refund of unearned premium for the period of coverage provided by the association beginning on the date of the order of liquidation to the date of expiration or cancellation.
(b) Any insured or claimant entitled to the benefits of this article who elects to proceed under this article shall be deemed to have assigned to the association his or her rights against the estate of the insolvent insurer.
(a) (1) To the extent necessary to secure funds for the association for payment of administrative expenses of the association and covered claims of insolvent insurers and also for payment of reasonable costs of adjusting the claims, the association shall collect premium payments from its member insurers sufficient to discharge its obligations.
(ii) Automobile liability (both personal injury and death and property damage).
(C) Claims other than workers' compensation, homeowners, and automobile, as defined above.
(3) Separate premium payments shall be required for each category.
(4) The premium payments for each category shall be used to pay the claims and costs allocated to that category.
(b) (1) The rate of premium charged shall be a uniform percentage of net direct written premium in the preceding calendar year applicable to that category.
(2) The rate of premium charges to each member insurer in the appropriate categories shall initially be based on the written premium of each insurer as shown in the latest year's annual financial statement on file with the commissioner.
(3) The initial premium shall be adjusted by applying the same rate of premium charge as initially used to each insurer's written premium as shown on the annual statement for the second year following the year on which the initial premium charge was based.
(4) (A) The difference between the initial premium charge and the adjusted premium charge shall be charged or credited to each member insurer by the association as soon as practical after the filing of the annual statements of the member insurers with the commissioner for the year on which the adjusted premium is based.
(B) Any credit due in a specific category to a member insurer as a result of the adjusted premium calculation shall be refunded to the member insurer.
(c) (1) For purposes of this section, "net direct written premiums" means the amount of gross premiums, less return premiums, received in that calendar year upon business done in this state, other than premiums received for reinsurance.
(2) In cases of a dispute as to the amount of the net direct written premium between the association and one of its member insurers, the written decision of the commissioner shall be final.
(d) (1) The premium charged to any member insurer for any of the three categories or a category established by the association shall not be more than 2 percent of the net direct premium written in that category in this state by that member insurer per year, starting on January 1, 2003, until December 31, 2007, and thereafter shall be 1 percent per year, until January 1, 2015.
(2) Commencing January 1, 2015, the premium charged to any member insurer for any of the three categories or a category established by the association shall not be more than 2 percent of the net direct written premium unless there are bonds outstanding that were issued pursuant to Article 14.25 (commencing with Section 1063.50) or Article 14.26 (commencing with Section 1063.70).
(3) If bonds issued pursuant to either article are outstanding, the premium charged to a member insurer for the category for which the bond proceeds are being used to pay claims and expenses shall not be more than 1 percent of the net direct written premium for that category.
(e) (1) The association may exempt or defer, in whole or in part, the premium charge of any member insurer, if the premium charge would cause the member insurer's financial statement to reflect an amount 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 by the company whose premium charge was deferred.
(2) Deferred premium charges shall be paid when the payment will not reduce capital or surplus below required minimums.
(f) After all covered claims of the insolvent insurer and expenses of administration have been paid, any unused premiums and any reimbursements or claims dividends from the liquidator remaining in any category shall be retained by the association and applied to reduce future premium charges in the appropriate category.
(g) The commissioner may suspend or revoke the certificate of authority to transact business in this state of a member insurer that fails to pay a premium when due and after demand has been made.
(h) Interest at a rate equal to the current federal reserve discount rate plus 21/2 percent per annum shall be added to the premium of any member insurer that fails to submit the premium requested by the association within 30 days after the mailing request. However, in no event shall the interest rate exceed the legal maximum.
(i) This section shall apply only to premium charges paid prior to January 1, 2017.
(j) This section shall remain in effect only until January 1, 2020, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2020, deletes or extends that date.
(a) (1) To the extent necessary to secure funds for the association for payment of the administrative expenses of the association, covered claims of insolvent insurers, and for payment of reasonable costs of adjusting the claims, the association shall collect premium payments from its member insurers sufficient to discharge its obligations.
(C) Claims other than workers' compensation, homeowners', and automobile, as defined above.
(2) The rate of premium charges to each member insurer in the appropriate categories shall be based on the net direct written premium of each member insurer as shown in the latest year's annual financial statement on file with the commissioner.
(d) In charging premiums to member insurers, the association shall adjust, if necessary, the net direct written premiums shown on a member insurer's annual statement by excluding any premiums written for any lines of insurance or types of coverage not covered by this article under paragraph (3) of subdivision (c) of Section 1063.1.
(e) (1) The premium charged to any member insurer for any of the three categories or a category established by the association shall not be more than 2 percent of the net direct written premium unless there are bonds outstanding that were issued pursuant to Article 14.25 (commencing with Section 1063.50) or Article 14.26 (commencing with Section 1063.70).
(2) If bonds issued pursuant to either article are outstanding, the premium charged to a member insurer for the category for which the bond proceeds are being used to pay claims and expenses shall not be more than 1 percent of the net direct written premium for that category.
(f) (1) The association may exempt or defer, in whole or in part, the premium charge of any member insurer, if the premium charge would cause the member insurer's financial statement to reflect an amount 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 by the company whose premium charge was deferred.
(g) After all covered claims of insolvent insurers and expenses of administration have been paid, any unused premiums and any reimbursements or claims dividends from liquidators remaining in any category shall be retained by the association and applied to reduce future premium charges in the appropriate category.
(h) The commissioner may suspend or revoke the certificate of authority to transact business in this state of a member insurer that fails to pay a premium when due and after demand has been made.
(i) Interest at a rate equal to the current federal reserve discount rate plus 21/2 percent per annum shall be added to the premium of any member insurer that fails to submit the premium requested by the association within 30 days after the mailing request. However, in no event shall the interest rate exceed the legal maximum.
(j) This section shall apply only to premium charges paid on or after January 1, 2017.
All proceedings in which the insolvent insurer is a party or is obligated to defend a party in any court in the state shall, subject to waiver by the association in specific cases involving covered claims and subject to waiver by the commissioner as to matters that are not covered claims, be stayed for 60 days from the date that an order of liquidation or an order of receivership with a finding of insolvency has been entered by a superior court in this state or by a court in the state of domicile of the insurer, and an additional time thereafter as may be determined necessary by the court to permit proper defense or conduct of all pending causes of action by the association or the commissioner, as applicable. The stay as to matters to which the insolvent insurer is a party shall be superseded by and when an injunction or stay order is entered by the court in this state having jurisdiction of the liquidation or the ancillary liquidation.
The liquidator, receiver, or statutory successor of an insolvent member insurer shall permit reasonable access by the association to the insolvent insurer's records as is necessary for the association to carry out its duties with regard to covered claims. In addition, the liquidator, receiver, or statutory successor shall provide the association with copies of these records upon the reasonable request of the association and at the expense of the association.
When a liquidator, domiciliary or ancillary, is appointed in this state for any member insurer, the liquidator shall promptly give notice of his or her appointment and a brief description of the contents of this article and of the nature and functions of the association by prepaid first-class mail, to: (a) all persons known or reasonably expected to have or be interested in claims against the insurer, at the last known address within this state; (b) all insureds of the insurer, at the last known address within this state, accompanied by a notice of the date of termination of insurance; and (c) the board of governors of the association. That notice may, but need not be, combined with the notice provided for in Section 1021. When notice is being provided by an ancillary liquidator, notice is only required to the extent information is available to provide the notice. The ancillary liquidator may also rely on the notice provided by the domiciliary liquidator to satisfy the notice requirements of this section. The liquidator may also require that producers of record of the insurer give prompt written notice of the same information, by first-class mail, to their insureds at the last known address within this state. The liquidator shall also promptly publish the notice pursuant to the requirements of Section 1022 and by publication elsewhere in this state as the court shall direct.
Notwithstanding any other provision of law, the association shall be exempt from all license fees, income, franchise, privilege, property, or occupation taxes levied or assessed by this state, any municipality, county, or other political subdivision of this state. The rules of the commissioner promulgated pursuant to this article may exempt the association from: filing an annual statement, maintaining minimum required capital, paying any fees or reimbursements, or meeting any other requirement or doing any other thing required by this code or other laws relating to insurance.
(a) The operation of the association shall at all times be subject to the regulation of the commissioner. The commissioner, or any deputy or examiner, or any person whom the commissioner shall appoint, shall have the power of visitation and examination into the affairs of the association and free access to all books, papers, and documents that relate to the business of the association, may summon and qualify witnesses under oath, and may examine officers, agents or employees, or any other person having knowledge of the affairs, transactions, or conditions of the association.
(b) Any member insurer aggrieved by any action or decision of the association may appeal to the commissioner within 30 days after the action or decision of the association and after exhaustion of administrative remedies may seek court relief as provided in Section 12940.
All orders or decisions of the commissioner made pursuant to Chapter 1347, Statutes of 1969 (of which this article is a part) and the provisions thereof as amended from time to time, shall be subject to judicial review as provided in Section 12940.
The commissioner may, upon notice and opportunity for all interested parties to be heard, issue such rules, regulations and orders as may be necessary to carry out the provisions of this article. Such rules and regulations shall be adopted, amended or repealed in accordance with Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code.
(a) The association, its member insurers, and its officers, directors, agents or employees of the association, or its member insurers, shall under no circumstances be liable for any sum in excess of the amount of covered claims of the insolvent insurer, as defined under subdivision (c) of Section 1063.1 of this article and the costs of administration and the costs of loss adjustment, investigation and defenses relating to claims thereunder.
(b) Any person or member made a party to any action, suit or proceeding because such person or member served on the board of governors or on a committee or was an officer or employee of the association shall be held harmless and be indemnified by the association against all liability and costs (including the amounts of judgments, settlements, fines or penalties) and expenses incurred in connection with such action, suit or proceeding; provided, however, such indemnification shall not be provided on any matter in which the person or member shall be finally adjudged in any such action, suit or proceeding to have committed a breach of duty involving gross negligence, dishonesty, willful misfeasance or reckless disregard of the responsibilities of his office.
(c) The costs and expenses of such indemnification shall be prorated and paid for by the members in the same manner as provided in the plan of operations for the proration of premiums.
(d) The provisions of this section shall not be construed as creating any right in any third person, and shall be applicable only as between the association and its member insurers and its officers, directors, agents, or employees of the association or its member insurers.
No member insurer of the association shall engage in the unlawful trade practice defined and condemned in subdivision (g) of Section 790.03.
(a) The plan of operation adopted pursuant to subdivision (c) of Section 1063 shall contain provisions whereby each member insurer is required to recoup, in the year following the premium charge, a sum reasonably calculated to recoup the premium charge paid by the member insurer under this article by way of a surcharge on premiums charged for insurance policies to which this article applies. Amounts recouped shall not be considered premiums for any other purpose, including the computation of gross premium tax or agents' commission.
(b) The amount of any surcharge shall be separately stated on either a billing or policy declaration sent to an insured. The association shall determine the rate of the surcharge and the collection period for each category and these shall be mandatory for all member insurers of the association who write business in those categories. Member insurers who collect surcharges in excess of premiums paid pursuant to Section 1063.45 for an insolvent insurer shall remit the excess to the association as an additional premium within 30 days after the association has determined the amount of the excess recoupment and given notice to the member insurer of that amount. The excess shall be applied to reduce future premium charges in the appropriate category.
(c) The plan of operation may permit a member insurer to omit collection of the surcharge from its insureds when the expense of collecting the surcharge would exceed the amount of the surcharge. However, this section does not relieve the member insurer of its obligation to recoup the amount of surcharge otherwise collectible.
(d) This section applies only to premium charges paid prior to January 1, 2017.
(a) (1) The plan of operation adopted pursuant to subdivision (c) of Section 1063 shall contain provisions whereby each member insurer is required to recoup, in the year following the premium charge, a sum calculated to recoup the premium charge paid by the member insurer under this article by way of a surcharge on premiums charged for insurance policies to which this article applies.
(2) Amounts recouped shall not be considered premiums for any other purpose, including the computation of gross premium tax or agents' commission.
(b) (1) The amount of any surcharge shall be separately stated on either a billing or policy declaration sent to an insured. The association shall determine the rate of the surcharge and the collection period for each category, and these shall be mandatory for all member insurers of the association who write business in those categories.
(2) Each member insurer shall file a report in accordance with the provisions of the plan of operation indicating the amount of surcharges it has collected.
(A) Member insurers who collect surcharges in excess of premium charges paid in the preceding year pursuant to Section 1063.5 shall remit the excess to the association as an additional premium within 30 days after the association has determined the amount of the excess recoupment and given notice to the member insurer of that amount. The excess shall be applied to reduce future premium charges in the appropriate category.
(B) Member insurers who report surcharge collections that are less than what they paid in the preceding year's premium charge shall receive reimbursement from the association for the shortfall in surcharge collection.
(c) (1) The plan of operation may permit a member insurer to omit collection of the surcharge from its insureds when the expense of collecting the surcharge would exceed the amount of the surcharge.
(2) A member insurer electing to omit collecting surcharges from any of its insureds shall not be entitled to any reimbursement from the association pursuant to subdivision (b).
(3) However, this section does not relieve the member insurer of its obligation to recoup the amount of surcharge otherwise collectible.
(d) This section applies only to premium charges paid on or after January 1, 2017.
"Companies writing property and casualty insurance business in California are required to participate in the California Insurance Guarantee Association. If a company becomes insolvent the California Insurance Guarantee Association settles unpaid claims and assesses each insurance company for its fair share.
In any workers' compensation matter the association shall have the same period of time within which to act or to exercise a right as is accorded to the insurer by the Labor Code, and those time periods shall be tolled against the association until 45 days after the appointment of a domiciliary or receiver.
The association, to the extent it determines necessary or desirable, may request the department to issue bonds pursuant to Article 14.25 (commencing with Section 1063.50) to provide funds to pay covered claims of insolvent insurers. The association may act as agent of the department to collect premium payments levied by the department on its member insurers. If the association borrows the proceeds of the bonds from the department, the association may assess an additional premium, not to exceed 2 percent of the net direct premium written by the member insurer, to be applied exclusively to the repayment of the loan. The revenue received from the additional premium shall be pledged to the repayment of the loan and shall be used exclusively for that purpose until the bonds have been paid or provision for the payment of them has been made.
(a) All meetings of the board of governors of the association and its investment and audit committees shall be open and public, and all persons shall be permitted to attend any meeting of the association except as otherwise provided in subdivision (g). This shall apply to meetings conducted in person and via teleconference. Attendance at telephonically conducted meetings by members of the public shall be made available by the publication by the association in its meeting notices as set forth below of a call-in number and passcode that members of the public may use to participate in the meeting.
(1) Individual contacts or conversations between a member of the board of governors and any other person, including, but not limited to, any employee or official of the association, that do not violate subdivision (c).
(2) The attendance of a majority of the members of the board of governors or a committee at an industry conference or other gathering organized by a person or organization other than the association, provided that a majority of the members do not discuss among themselves any item that is within the responsibility of the association as set forth in this article or in the association's plan of operations.
(3) The attendance of a majority of the members, the board of governors, or a committee at a purely social or ceremonial occasion, provided that a majority of the members do not discuss among themselves any item that is within the responsibility of the association as set forth in this article or in the association's plan of operations.
(c) (1) A majority of the members of the board of governors shall not, outside a meeting authorized by this article, use a series of communications of any kind, directly or through intermediaries, to discuss, deliberate, or take action on any item of business that is within the responsibility of the association as set forth in this article or in the association's plan of operations.
(2) Paragraph (1) shall not be construed as preventing any employee or officer of the association from engaging in separate conversations or communications outside of a meeting authorized by this article with members of the board of governors in order to answer questions or provide information regarding matters within the responsibility of the association, if that person does not communicate to members of the board of governors the comments or position of any other member or members of the board.
(d) All meetings of the association authorized under this article shall comply with the protections and prohibitions contained in Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation of that act.
(e) The association shall provide notice of its meetings that are open and public pursuant to subdivision (a). This notice and an agenda of items to be discussed shall be provided at least 10 days in advance of the meeting via the association's Internet Web site, and the notice shall be published in a newspaper of general circulation in the State of California. In addition, members of the public may request notice by regular mail or by e-mail by making a written request to the association for notice of meetings that are open and public pursuant to subdivision (a). Notice may be waived, or the 10-day period modified with respect to any particular meeting by the board of governors of the association upon request submitted to the commissioner stating the need for a modified notice and exigent circumstances requiring waiver of the notice requirement at least 24 hours in advance of the meeting time set. The approval of the commissioner shall be deemed granted if a written denial of the request for waiver or modification of the notice period is not received at least four hours prior to the commencement of the meeting to be conducted under the modified notice. Notice of a meeting that does not meet the 10-day notice requirement under this subdivision shall be posted on the association's Internet Web site and provided by e-mail to members of the public who have made a written request for e-mail notice to the association of meetings that are open and public pursuant to subdivision (a). A summary agenda shall be included in each such notice, but members of the board of governors may bring additional items of business to any such meeting.
(f) At any meeting where notice is required pursuant to this section, the association shall reserve time for public comment on the issues addressed at the meeting.
(1) Bond issuances or other matters relating to borrowings of the association.
(2) Matters regarding the detection and prevention of insolvency of members of the association as contemplated by this article.
(3) Nonpublic information received from liquidators, receivers, and regulators regarding members of the association.
(4) Nonpublic information received from the California Liquidation Office.
(5) Proprietary information regarding third-party administrators, vendors that provide products and services in connection with claims administration, or investments made by the association. Proprietary information also includes information which the association and its corresponding out-of-state associations only have access to pursuant to binding contractual confidentiality provisions.
(6) Nonpublic financial information regarding members of the association, including information in support of requests for assessment deferrals.
(7) Statutory interpretations and other advice received from legal counsel to the association, whether in connection with litigation or otherwise.
(8) Appointment, employment, evaluation of performance, or dismissal of any employee or vendor that provides products and services in connection with claims administration of the association.
(9) Deliberations concerning the purchase, sale, exchange, or lease of real or personal property, including investment property.
(10) Matters posing a threat of criminal or terrorist activity against the association, its personnel, or its property.
(11) Covered claims and purported covered claims against the association.
(12) Disputes and purported disputes with or involving members of the association.
(13) Any other matters as permitted by the commissioner under the association's approved plan, provided such matters may be heard in a closed meeting or a closed session consistent with Section 11126 of the Government Code.
(1) Disclose, prior to the closed meeting or the closed session, the general nature of the item or items to be discussed in the closed session. The disclosure may take the form of a reference to the item or items as they are listed by number or letter on the agenda. In the closed session, the board of governors may consider only those matters covered in its disclosure. After any closed session, the board of governors shall reconvene in open session prior to adjournment and shall make any reports, provide any documentation, or make any other disclosures that may be required consistent with this article. The announcements required to be made in open session pursuant to this subdivision may be made at the location announced in the agenda for the closed session, as long as the public is allowed to be present at that location for the purpose of hearing the announcement.
(2) Provide periodic reports to the commissioner identifying the matters covered in each such closed meeting or session and the provision of subdivision (g) pursuant to which the subject was discussed.
(i) Nothing in this section shall require or authorize the disclosure of names or other information that would constitute an invasion of privacy or otherwise unnecessarily divulge the particular facts concerning the closed session or the disclosure of which is prohibited by state or federal law.
(j) The commissioner or his or her designated representative shall be permitted to attend all meetings of the board of governors and its investment and audit committees, specifically including closed meetings and sessions. Any information discussed in closed meetings or sessions shall be treated by the commissioner and his or her designated representatives as confidential pursuant to the provisions of Section 12919.
(a) Nothing in this article requires a final determination of a claim in an insolvent insurer's liquidation proceeding before a covered claim may be submitted to the California Insurance Guarantee Association (CIGA). Nothing in this article requires a claim to first be determined and approved by the liquidator before CIGA pays and discharges a covered claim. If a claim is presented to the association and all requirements under paragraph (1) of subdivision (c) of Section 1063.1 for processing a covered claim are satisfied, the association shall proceed to process the claim for payment under this article.
(b) If the association provides a written denial of a nonworkers' compensation claim, the person asserting the claim against the association shall have one year to bring an action challenging the denial, including an action for declaratory relief. If the written denial is based on a failure to exhaust other insurance available to pay the claim, a claim shall be reasserted against the association within six months after all other insurance has been exhausted.