The DEF's of LIGA: An Update to the ABC's of LIGA

• Author: Stephanie B. Laborde - James E. Moore, Jr. - Heather Landry
• Position: Stephanie B. Laborde is a Partner with the firm of Milling Benson Woodward L.L.P. and has served as General Counsel for the Louisiana Insurance Guaranty Association for approximately 13 years. James E. Moore, Jr. was an Income Partner and Heather L. Landry was an Associate with the firm of Milling Benson Woodward L.L.P. at the time this Article...
• Pages: 997-1044

The DEF’s of LIGA: An Update to the ABC’s of LIGA Stephanie B. Laborde, James E. Moore, Jr., and Heather Landry  INTRODUCTION More than 20 years ago, Carey J. Guglielmo and Daniel J. Balhoff authored an article in the Louisiana Law Review entitled, “The ABC’s of LIGA,” 1 which has served as an excellent guide for practitioners and laymen alike in interpreting and understanding the law applicable to the Louisiana Insurance Guaranty Association (“LIGA”). There have been numerous legislative changes to LIGA Law, Louisiana Revised Statutes section 22:2051 and the following, 2 and many important decisions by the courts since Guglielmo and Balhoff’s original article. The purpose of this Article is to discuss developments in LIGA Law. This Article endeavors to set forth the current state of the settled law and to discuss the areas that remain subject to conflict or judicial interpretation. This Article first discusses the character and purpose of LIGA and then the applicable procedures for suing and defending cases involving LIGA. A substantive discussion of the defenses and statutory limits to LIGA’s obligation to pay claims will be followed by an analysis of the application of LIGA Law to the insured. Finally, this Article concludes with a discussion of settlements and judgments in the context of these cases and which version of LIGA Law applies to a specific claim. I. BACKGROUND Before 1970, if a Louisiana property or casualty insurer were declared insolvent, claimants and policyholders would be relegated to filing a claim Copyright 2017, by STEPHANIE B. LABORDE, JAMES E. MOORE, JR., AND HEATHER LANDRY.  Stephanie B. Laborde is a Partner with the firm of Milling Benson Woodward L.L.P. and has served as General Counsel for the Louisiana Insurance Guaranty Association for approximately 13 years. James E. Moore, Jr. was an Income Partner and Heather L. Landry was an Associate with the firm of Milling Benson Woodward L.L.P. at the time this Article was drafted. 1. Carey J. Guglielmo & Daniel J. Balhoff, The ABC’s of LIGA , 53 LA. L. REV. 1759 (1993). 2. In 2008, title 22 was renumbered pursuant to Act No. 415. Act No. 415, 2008 La. Acts 1846–1922. Before January 1, 2009, LIGA Law was found in sections 1375 through 1393 of title 22 of the Louisiana Revised Statutes. 998 LOUISIANA LAW REVIEW [Vol. 77 in the liquidation proceedings of the insolvent insurer. 3 Any assets of the insolvent insurer were divided among creditors and claimants according to their respective ranks. 4 The process typically took years and rarely resulted in significant payment of claims. In 1969, the National Association of Insurance Commissioners (“NAIC”) drafted a model post-insolvency assessment fund bill (the “Model Act”) in response to federal congressional efforts to address and regulate insurer insolvencies. 5 Variations of the Model Act were quickly adopted by most states, including Louisiana, which adopted its version of the Model Act in 1970. 6 Today, every state, the District of Columbia, Puerto Rico, and the Virgin Islands have active property and casualty guaranty funds. 7 Since the early 1970s, there have been over 550 property and casualty insurer insolvencies with overall guaranty fund payouts of more than $27 billion. 8 By the end of 2014, LIGA had successfully paid and closed 143,749 claims from 163 insolvent companies, totaling over $923 million. 9 II. WHAT IS LIGA? LIGA is a sui generis entity created by the Louisiana Legislature, 10 and as a legislative creation, LIGA must operate within legislative 3. LA. REV. STAT. §§ 22:732–22:763 (1969), renumbered as LA. REV. STAT. §§ 22:2001–22:2044 by Act No. 415, 2008 La. Acts 1846. 4. Id. § 22:746 (1969), renumbered as LA. REV. STAT. § 22:2025 by Act No. 415, 2008 La. Acts 1846. 5. La. Workers’ Comp. Corp. v. La. Ins. Guar. Ass’n, 20 So. 3d 1047, 1052 (La. Ct. App. 2009) (first citing Linda M. Lasley et al., Insurance Guaranty Funds: The New “Money Pit”? , 416 COM. L. & PRAC. COURSE HANDBOOK SERIES 113, 115–19 (1987), and then citing Davis J. Howard, Uncle Sam vs. The Insurance Commissioners: A Multi- Level Approach to Defining the “Business of Insurance” under the McCarran– Ferguson Act, 25 WILLAMETTE L. REV. 1, 14 (1989)). 6. Act No. 81, 1970 La. Acts 237 (codified at LA. REV. STAT. §§ 22:1375– 22:1394 (1971)). Louisiana adopted much of the Model Act almost verbatim. Hopkins v. Howard, 930 So. 2d 999, 1002 (La. Ct. App. 2006). 7. La. Workers’ Comp. Corp ., 20 So. 3d at 1052; The Property and Casualty Guaranty Fund System At-A-Glance, NAT’L CONF. OF INS. GUARANTY FUNDS, http://ncigf.org/media-facts [https://perma.cc/M3TD-PVM3] (last visited Feb. 11, 2017). 8. The Property and Casualty Guaranty Fund System At-A-Glance, supra note 7. 9. About LIGA: Accomplishing Our Mission, LA. INS. GUARANTY ASS’N, http://www.laiga.org/history/ [https://perma.cc/FG7L-VVVE] (last visited Feb. 11, 2017). 10. La. Ins. Guar. Ass’n v. Gegenheimer, 636 So. 2d 209, 210 (La. 1994). 2017] THE DEF’S OF LIGA 999 parameters. 11 LIGA was established by the legislature as the administrator of the Louisiana Insurance Guaranty Association Law (“LIGA Law”). 12 A. The Association LIGA is an association of member insurers whose purpose is to ameliorate some of the losses that would otherwise accrue to claimants and policyholders because of insurance insolvencies and, more generally, to provide stability and safety in the insurance environment. 13 Louisiana Revised Statutes section 22:2056(A) provides, There is created a private non-profit unincorporated legal entity to be known as the “Louisiana Insurance Guaranty Association.” All member insurers defined in R.S. 22:2055 shall be and remain members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under a plan of operation established and approved under R.S. 22:2059 and shall exercise its powers through a board of directors established under R.S. 22:2057. 14 Louisiana Revised Statutes section 22:2055(9) provides, (a) “Member insurer” means any person who meets both of the following criteria: (i) Is licensed and authorized to transact insurance in this state. (ii) Since September 1, 1970, has written at least one policy of insurance to which this Part applies. (b) An insurer shall cease to be a member insurer effective on the day following the termination or expiration of its license to transact the kinds of insurance to which this Part applies; however, the insurer shall remain liable as a member insurer for any and all obligations, including obligations for assessments levied prior to the termination or expiration of the insurer’s license. 15 Louisiana Revised Statutes section 22:2057(A) provides, The Board of Directors of the Association shall consist of nine 11. Id. 12. LA. REV. STAT. §§ 22:2051−22:2070 (2017). Louisiana Revised Statutes section 22:2051 provides, “This Part shall be known and may be cited as the Louisiana Insurance Guaranty Association Law.” Id. § 22:2051. 13. Id. § 22:2052. 14. Id. § 22:2056(A). 15. Id. § 22:2055(9). 1000 LOUISIANA LAW REVIEW [Vol. 77 persons serving terms as established in the plan of operation. The board shall be composed of two consumer representatives appointed by the commissioner [of insurance], one person appointed by the president of the Senate, one person appointed by the speaker of the House of Representatives, all of whom shall be residents of the State of Louisiana, and five additional persons selected by member insurers, one of which shall be a representative selected by the membership of the Louisiana Association of Fire and Casualty Companies (LAFAC), subject to the approval of the commissioner. 16 LIGA is not authorized to act in any manner inconsistent with the powers expressly granted to it by and in LIGA Law. However, the powers given to LIGA include the ability to perform all acts “necessary or proper to effectuate the purpose” of LIGA Law. 17 Although LIGA has been considered a “public entity” for purposes of the Louisiana Code of Governmental Ethics, 18 the 2010 amendments to LIGA Law added language to Louisiana Revised Statutes section 22:2056(B), which provides that “[t]he association is not and may not be deemed a department, unit, agency, or instrumentality of the state for any purpose, and shall not be subject to laws governing such departments, units, agencies, or instrumentalities, commissions or boards of the state.” 19 Although LIGA is not a state agency, 20 it is statutorily required to submit a plan of operation to the Commissioner of Insurance and the 16. Id. § 20:2057(A). 17. Id. § 22:2058(B)(5). 18. La. Ins. Guar. Ass’n v. Comm’n on Ethics for Pub. Emps., 656 So. 2d 670, 675 (La. Ct. App. 1995). 19. LA. REV. STAT. § 22:2056(B) (emphasis added). See La. Bd. Ethics Op. No. 2009-344a (2009) (determining that the members of the board of directors for the Louisiana Life and Health Insurance Guaranty Association (“LLHIGA”) were not required to file annual personal financial disclosure statements pursuant to the Code of Governmental Ethics in light of the language in the LLHIGA’s enabling statute, Louisiana Revised Statutes section 22:2085(C), which states that LLHIGA “shall not be subject to laws governing such departments, units, agencies, instrumentalities, commissions, or boards of the state”). 20. Revised Statutes section 22:2056(B) confirms, The association is not and may not be deemed a department, unit, agency, or instrumentality of the state for any purpose, and shall not be subject to laws governing such departments, units, agencies, instrumentalities, commissions, or boards of the state. All debts, claims, obligations and liabilities of the association, whenever incurred, shall be the debts, claims, obligations, and liabilities of the association only and not of the state, its agencies, instrumentalities, officers, or employees. Association monies may not be considered part of the general fund of the state...