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HB 720

Insurance Guaranty Association Act Revisions.

2025-2026 Session Introduced by Jennifer Balkcom and 3 co-sponsors

The bill expands IGA scope to include certain cybersecurity coverages, sets a $500,000 aggregate cap per cyber event, and clarifies covered claims and IGA powers.

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Bill Summary · HB 720

Summary — HB 720: Insurance Guaranty Association Act Revisions

Status: Introduced / First reading April 2025 (referred to Insurance committee)
Subject areas: Insurance; commerce; consumer protection

Purpose
- Modernize North Carolina’s Insurance Guaranty Association (IGA) law to (1) explicitly include certain cybersecurity insurance coverages within the IGA’s scope, (2) clarify what constitutes a “covered claim,” and (3) update the IGA’s powers and payment rules (as recommended by the Department of Insurance).

Key provisions and changes
1. Scope (G.S. 58‑48‑10)
- Confirms the Article applies to all direct insurance but excludes warranties/service-contract insurance — except it allows coverages that may be contained within a cybersecurity insurance policy to remain in scope.

  1. Definitions and “covered claim” (G.S. 58‑48‑20)

    • Retains the $50 minimum threshold for a covered claim.
    • Clarifies that a “covered claim” includes unpaid claim obligations arising under policies issued by an insurer that later becomes insolvent, and also those obligations that were later allocated, transferred, merged, novated, or assumed by another insurer — subject to specified conditions (e.g., final insolvency liquidation order against the assuming insurer and prior regulatory/judicial approval where a non‑member insurer assumed coverage).
    • Explicitly defines “cybersecurity insurance” to include first‑ and third‑party coverages for losses and mitigation arising out of data breaches, network intrusions, viruses, ransomware, cyber extortion, identity theft, and similar exposures.
    • Excludes from “covered claim”: punitive/exemplary damages, amounts under retrospective rating return‑of‑premium plans, amounts due to reinsurers/insurance pools as subrogation or contribution, fines/penalties (including attorneys’ fees), and claims by persons whose net worth exceeded $50,000,000 on Dec. 31 prior to the insolvency.

  2. Association obligations and limits (G.S. 58‑48‑35)

    • Confirms the IGA is obligated for covered claims existing prior to the insolvency determination and those arising within 30 days after it (or before policy expiration/renewal if earlier).
    • Monetary limits:
      • IGA obligation applies only to amounts > $50 and generally < $500,000 per claim.
      • Exceptions: workers’ compensation claims are paid in full.
      • Return of unearned premium: capped at $10,000 per policy.
      • For cybersecurity policies/endorsements, the IGA’s total obligation for all first‑ and third‑party claims arising from a single insured cyber event is capped at $500,000 (aggregate across claimants).
    • Powers and procedures:
      • IGA may investigate, adjust, settle, deny claims; appoint and direct counsel and service providers; and pay claims in any reasonable order (e.g., by receipt, groups, categories).
      • IGA has an express right to review and contest settlements/releases/judgments entered before liquidation, subject to limits. Settlements/judgments within 120 days prior to liquidation may be set aside if entered without reasonable care, as default/fraud/collusion, or for insurer failure to defend; if set aside, the IGA may defend claims on the merits.

Who is affected
- Insureds and claimants of insolvent insurers in North Carolina — including those with cybersecurity insurance claims (subject to the new aggregate cap).
- Member insurers (IGA members) — potential changes in assessment exposure and in the claims the IGA must address.
- Trade parties involved in transfers/assumptions of insurance obligations — clarified conditions for when assumed obligations remain covered.
- Workers’ compensation claimants — positively impacted because the IGA continues to pay workers’ comp claims in full.

Procedural / timeline notes
- Text amends G.S. 58‑48‑10, 58‑48‑20, and 58‑48‑35.
- House/first reading occurred April 2025 and the bill was referred to the Insurance committee (per bill history); further committee and floor actions would determine final enactment.

Potential impact and considerations
- Brings IGA law up to date by expressly addressing cyber risk coverages and limiting the IGA’s aggregate exposure for a single cyber event to $500,000 — a measure likely intended to protect the guaranty fund from large, systemic cyber losses.
- Maintains protections for workers’ compensation beneficiaries and retains consumer protections for unearned premium (within $10,000 limit).
- The exclusions (punitive damages, high‑net‑worth claimants, reinsurer recoveries) limit IGA liability and reduce potential assessments on member insurers.
- The expanded ability to contest recent settlements could enable the IGA to recover or avoid paying certain pre‑insolvency settlements it deems improvident.

If you want, I can produce a one‑page plain‑language “what this means for policyholders” handout or extract the exact statutory language changes side‑by‑side.

Compiled from official sources — confirm details with the bill’s official record.

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