§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.