AB1781 - Federal Home Loan Banks.

Assembly Bill No. 1781 CHAPTER 90 An act to amend Sections 1010, 1063.1, 1063.6, 1064.1, 1064.9, 1067.04, and 1067.16 of, and to add Section 1036.5 to, the Insurance Code, relating to insurance. [ Approved by Governor July 16, 2026. Filed with Secretary of State July 16, 2026. ] LEGISLATIVE COUNSEL'S DIGEST AB 1781, Michelle Rodriguez. Federal Home Loan Banks. Existing law creates the Department of Insurance, headed by the Insurance Commissioner, and generally regulates the business of insurance in the state. Existing law generally regulates insolvency and delinquency proceedings for insurers. This bill would prohibit a Federal Home Loan Bank (FHLB) from being stayed, enjoined, or prohibited from exercising or enforcing any right or cause of action against collateral pledged by an insurer-member or an FHLB insurer-member under any FHLB security agreement, as specified. Existing law generally provides for the voiding of specified transfers during insolvency proceedings for insurers. This bill would prohibit a receiver, rehabilitator, liquidator, or conservator from voiding any transfer of, or any obligation to transfer, money or other property arising under or in connection with any FHLB security agreement with an insurer-member unless the transfer was made with actual intent to hinder, delay, or defraud either existing or future creditors. This bill would define terms for purposes of these provisions. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: NO Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. Section 1010 of the Insurance Code is amended to read: 1010. (a) The provisions of this article shall apply to all persons, except the State Compensation Insurance Fund, subject to examination by the commissioner, or purporting to do insurance business in this state, or in the process of organization with intent to do such business therein, or from whom the commissioner’s certificate of authority is required for the transaction of business, or whose certificate of authority is revoked or suspended. (b) Notwithstanding subdivision (a), if any of the conditions set forth in Section 1011 exists with respect to the State Compensation Insurance Fund, and the commissioner would otherwise file a verified application with the superior court or proceed under Section 1013 against the fund, the commissioner shall instead issue a report to the Governor, the President pro Tempore of the Senate, and the Speaker of the Assembly setting forth the conditions that exist and recommending a course to remedy those conditions. The Governor, in consultation with the Legislature, shall direct a course of action to be implemented by the fund’s board of directors, or if additional legislative action is necessary, recommend a course of action to the Legislature, or both. (c) As used in this article: (1) “Federal Home Loan Bank” means an institution that is established under the Federal Home Loan Bank Act (12 U.S.C. Sec. 1421 et seq.) or its successor statute. (2) “Insurer-member” means an insurer that is a member of a Federal Home Loan Bank. SEC. 2. Section 1036.5 is added to the Insurance Code, to read: 1036.5. (a) Notwithstanding any other provision of this article, a Federal Home Loan Bank shall not be stayed, enjoined, or prohibited from exercising or enforcing any right or cause of action against collateral pledged by an insurer-member under any Federal Home Loan Bank security agreement or any pledge, security, collateral, or guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement to which the Federal Home Loan Bank is a party. (b) Notwithstanding any other provision of this article, a receiver, rehabilitator, liquidator, or conservator shall not void any transfer of, or any obligation to transfer, money or other property arising under or in connection with any Federal Home Loan Bank security agreement with an insurer-member, or any pledge, security, collateral, or guarantee agreement or any other similar arrangement or credit enhancement relating to a Federal Home Loan Bank security agreement with an insurer-member unless the transfer was made with actual intent to hinder, delay, or defraud either existing or future creditors. SEC. 3. Section 1063.1 of the Insurance Code is amended to read: 1063.1. As used in this article: (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. (c) (1) “Covered claims” means the obligations of an insolvent insurer, including the obligation for unearned premiums, that satisfy all of the following requirements: (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 before the date coverage under the policy terminated and before, 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 or under the workers’ compensation law of any state if the injured worker is a resident of this state and not otherwise entitled to coverage from an organization similar to the association in any other 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 when 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 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 has a right to recover a 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. (3) “Covered claims” does not include obligations arising from the following: (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. (D) Credit insurance. (E) Title insurance. (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) A 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 an obligation of the insolvent insurer arising out of a reinsurance contract, an obligation incurred after the expiration date of the insurance policy or after the insurance policy has been replaced by the insured, canceled at the insured’s request, or canceled by the liquidator, or an obligation to a state or to the federal government. If the individual has a covered claim that includes medical services provided by a medical facility owned in whole or in part by a state or federal agency, the association may pay that claim directly to the facility, as long as the services provided otherwise qualify as a covered claim and the claim is owned by the medical facility asserting the claim. (5) (A) “Covered claims” does not include an obligation 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. (B) 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, when 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 or the portion of a claim that is in excess of the applicable limits provided in the insurance policy issued by the insolvent insurer. (7) (A) “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). (B) For purposes of subparagraph (A), with respect to a policy of residential property insurance, each claim for a loss under a different coverage category shall be considered a separate covered claim. (C) Notwithstanding subparagraph (A), a claim for damage to, or loss of, a dwelling structure under a policy of residential property insurance shall not exceed one million dollars ($1,000,000) or the amount recoverable under the policy, whichever is less. (8) “Covered claims” does not include an amount awarded as punitive or exemplary damages, or an 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 either of the following: (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. (B) A claim by a person other than the original claimant under the insurance policy in the claimant’s own name, the claimant’s assignee as the person entitled thereto under a premium finance agreement as defined in Section 673 and entered into before insolvency, or the claimant’s 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 an obligation 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 an obligation of the insolvent insurer arising from a policy or contract of insurance issued or renewed before 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 an obligation 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. This paragraph applies 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 a 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 permissibly self-insured employer or group of self-insured employers, or the Self-Insurers’ Security Fund, shall, to the extent required by the Labor Code, be responsible for paying, adjusting, and defending each claim arising [Text truncated for display. Full text available on Congress.gov.]