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The Vermont Statutes Online
Title
08
:
Banking and Insurance
Chapter
112
:
LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION
Subchapter
001
:
LIFE AND HEALTH INSURANCE COMPANIES
§
4158. Powers and duties of the Association
In addition to
the powers and duties enumerated in other sections of this subchapter:
(1) If a member
insurer is an impaired insurer, the Association, in its discretion and subject
to any conditions imposed by the Association that do not impair the contractual
obligations of the impaired insurer and that are approved by the Commissioner,
may:
(A) guarantee,
assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, any or
all of the policies or contracts of the impaired insurer; and
(B) provide such
monies, pledges, loans, notes, guarantees, or other means as are proper to
effectuate subdivision (A) of this subdivision (1) and assure payment of the
contractual obligations of the impaired insurer pending action under
subdivision (A) of this subdivision (1).
(2) If a member
insurer is an insolvent insurer, the Association, in its discretion, shall
either:
(A)(i)(I)
Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or
reinsured, the policies or contracts of the insolvent insurer; or
(II) Assure
payment of the contractual obligations of the insolvent insurer; and
(ii) Provide
monies, pledges, loans, notes, guarantees, or other means reasonably necessary
to discharge the Association's duties; or
(B) Provide
benefits and coverages in accordance with the following provisions:
(i) With respect
to life and health insurance policies and annuities, assure payment of benefits
for premiums identical to the premiums and benefits, except for terms of
conversion and renewability, that would have been payable under the policies or
contracts of the insolvent insurer, for claims incurred:
(I) With respect
to group policies and contracts, not later than the earlier of the next renewal
date under those policies or contracts or 45 days, but in no event less than 30
days, after the date on which the Association becomes obligated with respect to
the policies and contracts.
(II) With
respect to nongroup policies, contracts, and annuities, not later than the earlier
of the next renewal date (if any) under the policies or contracts or one year,
but in no event less than 30 days, from the date on which the Association
becomes obligated with respect to the policies or contracts.
(ii) Make
diligent efforts to provide all known insureds or annuitants (for nongroup
policies and contracts), or group policy owners with respect to group policies
and contracts, 30 days notice of the termination, pursuant to subdivision (i)
of this subdivision (B), of the benefits provided.
(iii) With
respect to nongroup life and health insurance policies and annuities covered by
the Association, make available to each known insured or annuitant, or owner if
other than the insured or annuitant, and with respect to an individual formerly
insured or formerly an annuitant under a group policy who is not eligible for
replacement group coverage, make available substitute coverage on an individual
basis in accordance with the provisions of subdivision (iv) of this subdivision
(B), if the insureds or annuitants had a right under law or the terminated
policy or annuity to convert coverage to individual coverage or to continue an
individual policy or annuity in force until a specified age or for a specified
time, during which the insurer had no right unilaterally to make changes in any
provision of the policy or annuity or had a right only to make changes in
premium by class.
(iv)(I) In
providing the substitute coverage required under subdivision (iii) of this
subdivision (B), the Association may offer either to reissue the terminated
coverage or to issue an alternative policy.
(II) Alternative
or reissued policies shall be offered without requiring evidence of
insurability, and shall not provide for any waiting period or exclusion that
would not have applied under the terminated policy.
(III) The
Association may reinsure any alternative or reissued policy.
(v)(I)
Alternative policies adopted by the Association shall be subject to the
approval of the domiciliary insurance commissioner and the receivership court.
The Association may adopt alternative policies of various types for future
issuance without regard to any particular impairment or insolvency.
(II) ) Alternative policies shall contain at least
the minimum statutory provisions required in this State and provide benefits
that shall not be unreasonable in relation to the premium charged. The
Association shall set the premium in accordance with a table of rates that it
shall adopt. The premium shall reflect the amount of insurance to be provided
and the age and class of risk of each insured, but shall not reflect any
changes in the health of the insured after the original policy was last
underwritten.
(III) Any
alternative policy issued by the Association shall provide coverage of a type
similar to that of the policy issued by the impaired or insolvent insurer, as
determined by the Association.
(vi) If the
Association elects to reissue terminated coverage at a premium rate different
from that charged under the terminated policy, the premium shall be set by the
Association in accordance with the amount of insurance provided and the age and
class of risk, subject to approval of the domiciliary insurance commissioner
and the receivership court;
(vii) The
Association's obligations with respect to coverage under any policy of the
impaired or insolvent insurer or under any reissued or alternative policy shall
cease on the date the coverage or policy is replaced by another similar policy
by the policy owner, the insured, or the Association;
(viii) When
proceeding under subdivision (B) with respect to a policy or contract carrying
guaranteed minimum interest rates, the Association shall assure the payment or
crediting of a rate of interest consistent with subdivision 4153(b)(2)(C) of
this title.
(3)(A) In carrying
out its duties under subdivisions (1)(B) and (2) of this section, the
Association may request that there be imposed policy liens, contract liens,
moratoriums on payments, or other similar means and such liens, moratoriums, or
similar means may be imposed if the Commissioner:
(i) Finds that
the amounts which can be assessed under this subchapter are less than the
amounts needed to assure full and prompt performance of the impaired or
insolvent insurer's contractual obligations, or that the economic or financial
conditions as they affect member insurers are sufficiently adverse to render
the imposition of policy or contract liens, moratoriums, or similar means to be
in the public interest; and
(ii) Approves
the specific policy liens, contract liens, moratoriums, or similar means to be
used.
(B) Before being
obligated under subdivisions (1)(B) and (2) of this section the Association may
request that there be imposed temporary moratoriums or liens on payments of
cash values and policy loans and such temporary moratoriums and liens may be
imposed if they are approved by the Commissioner.
(4) The
Association shall have no liability under this section for any covered policy
of a foreign or alien insurer whose domiciliary jurisdiction or state of entry
provides by statute or regulation, for residents of this State protection
substantially similar to that provided by this subchapter for residents of
other states.
(5) The
Association may render assistance and advice to the Commissioner, upon his or
her request, concerning rehabilitation, payment of claims, continuations of
coverage, or the performance of other contractual obligations of any impaired
or insolvent insurer.
(6) The
Association shall have standing to appear before any court in this State with
jurisdiction over an impaired or insolvent insurer concerning which the
Association is or may become obligated under this subchapter. Such standing
shall extend to all matters germane to the powers and duties of the
Association.
(7)(A) Any
person receiving benefits under this subchapter shall be deemed to have
assigned his or her rights under the covered policy to the Association to the
extent of the benefits received because of this subchapter whether the benefits
are payments of contractual obligations or continuation of coverage. The
Association may require an assignment to it of such rights by any payee, policy
or contract owner, beneficiary, insured, or annuitant as a condition precedent
to the receipt of any rights or benefits conferred by this subchapter upon such
person. The Association shall be subrogated to these rights against the assets
of any impaired or insolvent insurer.
(B) The
subrogation rights of the Association under this subdivision shall have the
same priority against the assets of the impaired or insolvent insurer as that
possessed by the person entitled to receive benefits under this subchapter.
(8) The benefits
for which the Association may become liable shall in no event exceed the lesser
of:
(A) The
contractual obligations for which the insurer is liable or would have been
liable if it were not an impaired or insolvent insurer; or
(B)(i) With
respect to any one life, regardless of the number of policies or contracts:
(I) $300,000.00
in life insurance death benefits, but not more than $100,000.00 in net cash
surrender and net cash withdrawal values for life insurance;
(II) In health
insurance benefits: (aa) $100,000.00 for coverages not defined as disability
insurance or basic hospital, medical, and surgical insurance, or major medical
insurance, or long-term care insurance, including any net cash surrender and
net cash withdrawal values; (bb) $300,000.00 for disability insurance and
$300,000.00 for long-term care insurance; (cc) $500,000.00 for basic hospital,
medical, and surgical insurance, or major medical insurance; or
(III)
$250,000.00 in the present value of annuity benefits, including net cash
surrender and net cash withdrawal values; or
(ii) With
respect to each individual participating in a governmental retirement plan
established under Section 401, 403(b), or 457 of the U.S. Internal Revenue Code
covered by an unallocated annuity contract or the beneficiaries of each such
individual if deceased, in the aggregate, $250,000.00 in present value annuity
benefits, including net cash surrender and net cash withdrawal values;
provided, however, that in no event shall the Association be liable to expend
more than $300,000.00 in the aggregate with respect to any one individual under
subdivisions (B)(i)(I), (B)(i)(II)(aa) and (bb), and (B)(ii) of this
subdivision (8); and provided further, however, that in no event shall the
Association be liable to expend more than $500,000.00 in the aggregate with
respect to any one individual under subdivision (B)(i)(II)(cc) of this
subdivision (8); or
(iii) With respect
to each payee of a structured settlement annuity (or beneficiary or
beneficiaries of the payee if deceased) for which coverage is provided under
subdivision 4153(a)(3) of this title, $250,000.00 in present value annuity
benefits, in the aggregate, including net cash surrender and net cash
withdrawal values, if any;
(iv) With
respect to any one contract holder covered by any unallocated annuity contract
not included in subdivision (B)(ii) of this subdivision (8), $5,000,000.00 in
benefits, irrespective of the number of such contracts held by that contract
holder; and
(v) Provided,
however, that in no event shall the Association be liable to expend more than
$300,000.00 in the aggregate with respect to any one individual under
subdivisions (B)(i)(I), (B)(i)(II)(aa) and (bb), and (B)(ii) of this
subdivision (8); and provided further, however, that in no event shall the
Association be liable to expend more than $500,000.00 in the aggregate with
respect to any one individual under subdivision (B)(i)(II)(cc) of this
subdivision (8).
(9) The
Association may:
(A) Enter into
such contracts as are necessary or proper to carry out the provisions and
purposes of this subchapter.
(B) Sue or be
sued, including taking any legal actions necessary or proper for recovery of
any unpaid assessments under section 4159 of this title.
(C) Borrow money
to effect the purposes of this subchapter. Any notes or other evidence of
indebtedness of the Association not in default shall be legal investments for
domestic insurers and may be carried as admitted assets.
(D) Employ or
retain such persons as are necessary to handle the financial transactions of
the Association, and to perform such other functions as become necessary or
proper under this subchapter.
(E) Negotiate
and contract with any liquidator, rehabilitator, conservator, or ancillary
receiver to carry out the powers and duties of the Association.
(F) Take such
legal action as may be necessary to avoid payment of improper claims.
(G) Exercise,
for the purposes of this subchapter and to the extent approved by the
Commissioner, the powers of a domestic life or health insurer, but in no case
may the Association issue insurance policies or annuity contracts other than
those issued to perform the contractual obligations of the impaired or
insolvent insurer.
(10)(A)(i) At
any time within 180 days of the date of the order of liquidation, the
Association may elect to succeed to the rights and obligations of the ceding
member insurer that relate to policies or annuities covered, in whole or in
part, by the Association, in each case under any one or more reinsurance
contracts entered into by the insolvent insurer and its reinsurers and selected
by the Association. Any such assumption shall be effective as of the date of
the order of liquidation. The election shall be effected by the Association or
the National Organization of Life and Health Insurance Guaranty Associations
(NOLHGA) on its behalf sending written notice, return receipt requested, to the
affected reinsurers.
(ii) To
facilitate the earliest practicable decision about whether to assume any of the
contracts of reinsurance, and in order to protect the financial position of the
estate, the receiver, and each reinsurer of the ceding member insurer shall
make available upon request to the Association or to NOLHGA on its behalf as
soon as possible after commencement of formal delinquency proceedings: copies of in-force contracts of reinsurance
and all related files and records relevant to the determination of whether such
contracts should be assumed; and notices of any defaults under the reinsurance
contacts or any known event or condition which with the passage of time could
become a default under the reinsurance contracts.
(iii) The
following subdivisions (I) through (IV) shall apply to reinsurance contracts so
assumed by the Association:
(I) The
Association shall be responsible for all unpaid premiums due under the
reinsurance contracts for periods both before and after the date of the order
of liquidation, and shall be responsible for the performance of all other
obligations to be performed after the date of the order of liquidation, in each
case which relate to policies or annuities covered, in whole or in part, by the
Association. The Association may charge policies or annuities covered in part
by the Association, through reasonable allocation methods, the costs for
reinsurance in excess of the obligations of the Association and shall provide
notice and an accounting of these charges to the receiver.
(II) The
Association shall be entitled to any amounts payable by the reinsurer under the
reinsurance contracts with respect to losses or events that occur in periods
after the date of the order of liquidation and that relate to policies or
annuities covered, in whole or in part, by the Association, provided that, upon
receipt of any such amounts, the Association shall be obliged to pay to the
beneficiary under the policy or annuity on account of which the amounts were
paid a portion of the amount equal to the lesser of: (aa) The amount received
by the Association; and (bb) The excess of the amount received by the
Association over the amount equal to the benefits paid by the Association on
account of the policy or annuity less the retention of the insurer applicable
to the loss or event.
(III) Within 30
days following the Association's election (the "election date"), the
Association and each reinsurer under contracts assumed by the Association shall
calculate the net balance due to or from the Association under each reinsurance
contract as of the election date with respect to policies or annuities covered,
in whole or in part, by the Association, which calculation shall give full
credit to all items paid by either the insurer or its receiver or the reinsurer
prior to the election date. The reinsurer shall pay the receiver any amounts
due for losses or events prior to the date of the order of liquidation, subject
to any set-off for premiums unpaid for periods prior to the date, and the
Association or reinsurer shall pay any remaining balance due the other, in each
case within five days of the completion of the aforementioned calculation. Any
disputes over the amounts due to either the Association or the reinsurer shall
be resolved by arbitration pursuant to the terms of the affected reinsurance contracts
or, if the contract contains no arbitration clause, as otherwise provided by
law. If the receiver has received any amounts due the Association pursuant to
subdivision (iii)(II) of this subdivision (A), the receiver shall remit the
same to the Association as promptly as practicable.
(IV) If the
Association or receiver, on the Association's behalf, within 60 days of the
election date, pays the unpaid premiums due for periods both before and after
the election date that relate to policies or annuities covered, in whole or in
part, by the Association, the reinsurer shall not be entitled to terminate the
reinsurance contracts for failure to pay premium insofar as the reinsurance
contracts relate to policies or annuities covered, in whole or in part, by the
Association, and shall not be entitled to set off any unpaid amounts due under
other contracts, or unpaid amounts due from parties other than the Association,
against amounts due the Association.
(B) During the
period from the date of the order of liquidation until the election date (or,
if the election date does not occur, until 180 days after the date of the order
of liquidation):
(i)(I) Neither
the Association nor the reinsurer shall have any rights or obligations under
reinsurance contracts that the Association has the right to assume under
subdivision (A) of this subdivision (10), whether for periods prior to or after
the date of the order of liquidation; and
(II) The
reinsurer, the receiver, and the Association shall, to the extent practicable,
provide each other data and records reasonably requested;
(ii) Provided
that once the Association has elected to assume a reinsurance contract, the
parties' rights and obligations shall be governed by subdivision (A) of this
subdivision (10).
(C) If the Association
does not elect to assume a reinsurance contract by the election date pursuant
to subdivision (A) of this subdivision (10), the Association shall have no
rights or obligations, in each case for periods both before and after the date
of the order of liquidation, with respect to the reinsurance contract.
(D) When
policies or annuities, or covered obligations with respect thereto, are
transferred to an assuming insurer, reinsurance on the policies or annuities
may also be transferred by the Association, in the case of contracts assumed
under subdivision (A) of this subdivision (10), subject to the following:
(i) Unless the
reinsurer and the assuming insurer agree otherwise, the reinsurance contract
transferred shall not cover any new policies of insurance or annuities in
addition to those transferred;
(ii) The
obligations described in subdivision (A) of this subdivision (10) shall no
longer apply with respect to matters arising after the effective date of the
transfer; and
(iii) Notice
shall be given in writing, return receipt requested, by the transferring party
to the affected reinsurer not less than 30 days prior to the effective date of
the transfer.
(E) The
provisions of this subdivision (10) shall supersede the provisions of any law
or of any affected reinsurance contract that provides for or requires any
payment of reinsurance proceeds, on account of losses or events that occur in
periods after the date of the order of liquidation, to the receiver of the
insolvent insurer or any other person. The receiver shall remain entitled to
any amounts payable by the reinsurer under the reinsurance contracts with
respect to losses or events that occur in periods prior to the date of the
order of liquidation, subject to applicable setoff provisions.
(F) Except as otherwise
provided in this section, nothing in this subdivision (10) shall alter or
modify the terms and conditions of any reinsurance contract. Nothing in this
section shall abrogate or limit any rights of any reinsurer to claim that it is
entitled to rescind a reinsurance contract. Nothing in this section shall give
a policyholder or beneficiary an independent cause of action against a
reinsurer that is not otherwise set forth in the reinsurance contract. Nothing
in this section shall limit or affect the Association's rights as a creditor of
the estate against the assets of the estate. Nothing in this section shall
apply to reinsurance agreements covering property or casualty risks. (Added
1971, No. 170 (Adj. Sess.), § 2, eff. April 27, 1972; amended 1993, No. 55, §
6, eff. June 3, 1993; 2009, No. 42, § 16, eff. May 27, 2009; 2009, No. 137
(Adj. Sess.), §§ 7d, 7e, eff. May 29, 2010.)