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§431:16-208  Powers and duties of the association


Published: 2015

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     §431:16-208  Powers and duties of the

association.  (a)  If a member insurer is an impaired insurer, the

association may, in its discretion, and subject to any conditions imposed by

the association that do not impair the contractual obligations of the impaired

insurer, that are approved by the commissioner, and that are, except in cases

of court ordered conservation or rehabilitation, also approved by the impaired

insurer:

     (1)  Guarantee, assume, or reinsure, or cause to be

guaranteed, assumed, or reinsured, any or all of the policies or contracts of

the impaired insurer;

     (2)  Provide such moneys, pledges, notes, guarantees,

or other means as are proper to effectuate subsection (a)(1) and assure payment

of the contractual obligations of the impaired insurer pending action under

subsection (a)(1); or

     (3)  Loan money to the impaired insurer.

     (b)  If a member insurer is an insolvent

insurer, the association shall, in its discretion:

     (1)  (A)  Guarantee, assume, or reinsure, or cause

to be guaranteed, assumed, or reinsured, the policies or contracts of the

insolvent insurer; or

         (B)  Assure payment of the contractual

obligations of the insolvent insurer; and

         (C)  Provide such moneys, pledges, guarantees,

or other means as are reasonably necessary to discharge such duties; or

     (2)  Provide benefits and coverages in accordance with

the following provisions:

         (A)  With respect to life and accident and

health or sickness 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 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 the

policies or contracts or forty-five days, but in no event less than thirty

days, after the date on which the association becomes obligated with respect to

the policies;

             (ii)  With respect to non-group 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

thirty days, from the date on which the association becomes obligated with

respect to the policies or contracts.

         (B)  Make diligent efforts to provide all known

insureds or annuitants (for non-group policies and contracts), or group policy

owners with respect to group policies and contracts, thirty days notice of the

termination of the benefits provided.

         (C)  With respect to non-group life and

accident and health or sickness 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 subparagraph (D), if the insureds or annuitants

had a right under law or the terminated policy 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.

          (D)  (i)  In providing the substitute coverage

required under subparagraph (C), 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.

           (E) (i)  Alternative policies adopted by the

association shall be subject to the approval of the domiciliary commissioner or

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 which 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.

         (F)  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 or by a court of competent

jurisdiction.

         (G)  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 such coverage or policy

is replaced by another similar policy by the policyholder, the insured, or the

association.

         (H)  When proceeding under subsection (b)(2)

with respect to any policy or contract carrying guaranteed minimum interest

rates, the association shall assure the payment or crediting of a rate of

interest consistent with section 431:16-203(b)(2)(C).

     (c)  Nonpayment of premiums within thirty-one

days after the date required under the terms of any guaranteed, assumed,

alternative, or reissued policy or contract or substitute coverage shall

terminate the association's obligations under the policy or coverage under this

part with respect to the policy or coverage, except with respect to any claims

incurred or any net cash surrender value which may be due in accordance with

the provisions of this part.

     (d)  Premiums due for coverage after entry of

an order of liquidation of an insolvent insurer shall belong to and be payable

at the direction of the association, and the association shall be liable for

unearned premiums due to policy or contract owners arising after the entry of

such order.

     (e)  The protection provided by this part shall

not apply where any guaranty protection is provided to residents of this State

by the laws of the domiciliary state or jurisdiction of the impaired or

insolvent insurer other than this State.

     (f)  In carrying out its duties under

subsection (b), the association may, subject to approval by a court in this

State:

     (1)  Impose permanent policy or contract liens in

connection with any guarantee, assumption, or reinsurance agreement, if the

association finds that the amounts which can be assessed under this part are

less than the amounts needed to assure full and prompt performance of the

association's duties under this part, or that the economic or financial

conditions as they affect member insurers are sufficiently adverse to render

the imposition of such permanent policy or contract liens, to be in the public

interest; and

     (2)  Impose temporary moratoriums or liens on payments

of cash values and policy loans, or any other right to withdraw funds held in

conjunction with policies or contracts, in addition to any contractual

provisions for deferral of cash or policy loan value.  In addition, the

association may defer the payment of cash values, policy loans, or other rights

by the association for the period of any moratorium or moratorium charge

imposed by the receivership court on the payment of cash values or policy

loans, or on any other right to withdraw funds held in conjunction with

policies or contracts, out of the assets of the impaired or insolvent insurer,

except that the association may not defer the payment for claims covered by the

association to be paid in accordance with a hardship procedure established by

the liquidator or rehabilitator and approved by the receivership court.

     (g)  If the association fails to act within a

reasonable period of time as provided in subsection (b), the commissioner shall

have the powers and duties of the association under this part with respect to

the insolvent insurer.

     (h)  The association may render assistance and

advice to the commissioner, upon the commissioner's request, concerning

rehabilitation, payment of claims, continuance of coverage, or the performance

of other contractual obligations of any impaired or insolvent insurer.

     (i)  The association shall have standing to

appear or intervene before any court or agency in this State with jurisdiction

over an impaired or insolvent insurer concerning which the association is or

may become obligated under this part or with jurisdiction over any person or

property against which the association may have rights through subrogation or

otherwise.  Such standing shall extend to all matters germane to the powers and

duties of the association, including, but not limited to, proposals for

reinsuring, modifying, or guaranteeing the policies or contracts of the

impaired or insolvent insurer and the determination of the policies or

contracts and contractual obligations.  The association shall also have the

right to appear or intervene before any court or agency in another state with

jurisdiction over an impaired or insolvent insurer for which the association is

or may become obligated or with jurisdiction over any person or property

against whom the association may have rights through subrogation or otherwise.

  (j)(1)  Any person receiving benefits under this part

shall be deemed to have assigned the rights under, and any causes of action

against any person for losses arising under, resulting from, or otherwise

relating to, the covered policy or contract to the association to the extent of

the benefits received because of this part, whether the benefits are payments

of or on account of contractual obligations, continuation of coverage, or

provision of substitute or alternative coverages.  The association may require

an assignment to it of such rights and causes of action by any payee, policy or

contract owner, beneficiary, insured, or annuitant as a condition precedent to

the receipt of any right or benefits conferred by this part upon such person.

     (2)  The subrogation rights of the association under

this section 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 part.

     (3)  In addition to paragraphs (1) and (2), the

association shall have all common law rights of subrogation and any other

equitable or legal remedy that would have been available to the impaired or

insolvent insurer, or owner, beneficiary, or payee of a policy or contract with

respect to the policy or contracts.

     (4)  If the preceding provisions of this subsection

are invalid or ineffective with respect to any person or claim for any reason,

the amount payable by the association with respect to the related covered

obligations shall be reduced by the amount realized by any other person with

respect to the person or claim that is attributable to the policies, or portion

thereof, covered by the association.

     (5)  If the association has provided benefits with

respect to a covered obligation and a person recovers amounts to which the

association has rights as described in the preceding paragraphs of this

subsection, the person shall pay to the association the portion of the recovery

attributable to the policies, or portion thereof, covered by the association.

     (k)  The association may:

     (1)  Enter into such contracts as are necessary or

proper to carry out the provisions and purposes of this part;

     (2)  Sue or be sued, including taking any legal

actions necessary or proper to recover any unpaid assessments under section

431:16-209 and to settle claims or potential claims against it;

     (3)  Borrow money to effect the purposes of this part;

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;

     (4)  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 part;

     (5)  Take such legal action as may be necessary to

avoid payment of improper claims or recover payment of improper claims;

     (6)  Exercise, for the purposes of this part and to

the extent approved by the commissioner, the powers of a domestic life or

accident and health or sickness insurer, but in no case may the association

issue insurance policies or annuity contracts other than those issued to perform

its obligations under this part;

     (7)  Organize itself as a corporation or in other

legal form permitted by the laws of the State;

     (8)  Request information from a person seeking

coverage from the association in order to aid the association in determining

its obligations under this part with respect to the person, and the person

shall promptly comply with the request; and

     (9)  Take other necessary or appropriate action to

discharge its duties and obligations under this part or to exercise its powers

under this part.

     (l)  The association may join an organization

of one or more other state associations of similar purposes, to further the

purposes and administer the powers and duties of the association.

     (m)  With respect to covered policies for which

the association becomes obligated after an entry of an order of liquidation or

rehabilitation, the association may elect to succeed to the rights of the

insolvent insurer arising after the date of the order of liquidation or

rehabilitation under any contract of reinsurance to which the insolvent insurer

was a party, to the extent that the contract provides coverage for losses

occurring after the date of the order of liquidation or rehabilitation.  As a

condition to making this election, the association shall pay all unpaid

premiums due under the contract for coverage relating to periods before and

after the date of the order of liquidation or rehabilitation.

     (n)  The board of directors of the association

shall have discretion and shall exercise reasonable business judgment to

determine the means by which the association is to provide the benefits of this

part in an economical and efficient manner.

     (o)  Where the association has arranged or

offered to provide the benefits of this part to a covered person under a plan

or arrangement that fulfills the association's obligations under this part, the

person shall not be entitled to benefits from the association in addition to or

other than those provided under the plan or arrangement.

     (p)  Venue in a suit against the association

arising under this part shall be in the circuit court of the first circuit. 

The association shall not be required to give an appeal bond in an appeal that

relates to a cause of action arising under this part.

     (q)  In carrying out its duties in connection

with guaranteeing, assuming, or reinsuring policies or contracts under

subsection (a) or (b), the association may, subject to approval of the

receivership court, issue substitute coverage for a policy or contract that

provides an interest rate, crediting rate, or similar factor determined by use

of an index or other external reference stated in the policy or contract

employed in calculating returns or changes in value by issuing an alternative

policy or contract in accordance with the following provisions:

     (1)  In lieu of the index or other external reference

provided for in the original policy or contract, the alternative policy or

contract provides for a fixed interest rate, payment of dividends with minimum

guarantees, or a different method for calculating interest or changes in value;

     (2)  There is no requirement for evidence of

insurability, waiting period, or other exclusion that would not have applied

under the replaced policy or contract; and

     (3)  The alternative policy or contract is substantially

similar to the replaced policy or contract in all other material terms. [L

1987, c 347, pt of §2; am L 2002, c 155, §94; am L 2012, c 250, §7]

 

Note

 

  The 2012 amendment shall not apply to any proceedings in

which a member insurer is placed under an order of liquidation prior to July 1,

2012.  L 2012, c 250, §15.