§4158. Powers and duties of the Association

Link to law: http://legislature.vermont.gov/statutes/section/08/112/04158
Published: 2015

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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.)
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