Section: References to titles, subtitles, chapters, articles and sections
7. a. If a member insurer is an impaired domestic insurer, the association may, in its discretion, and subject to any conditions imposed by the association that do not unreasonably impair the contractual obligations of the impaired insurer, that are approved by the commissioner, and that are, except in cases of court ordered receivership, conservation or rehabilitation, also approved by the impaired insurer:
(1) guaranty, 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 monies, pledges, notes, guarantees, or other means as are proper to effectuate the provisions of paragraph (1) of this subsection and assure payment of the contractual obligations of the impaired insurer pending action under paragraph (1); or
(3) loan money to the impaired insurer.
b. (1) If a member insurer is an impaired insurer, whether domestic, foreign or alien, and the insurer is not paying claims in a timely manner, then subject to the preconditions specified in paragraph (2) of this subsection, the association shall, in its discretion, either:
(a) take any of the actions specified in subsection a. of this section, subject to the conditions therein; or
(b) provide substitute benefits in lieu of the contractual obligations of the impaired insurer solely for health insurance claims, periodic annuity benefit payments, death benefits, supplemental benefits, and cash withdrawals for policy or contract owners who petition therefor under claims of emergency or hardship in accordance with standards proposed by the association and approved by the commissioner.
(2) The association shall be subject to the requirements of paragraph (1) of this subsection only if:
(a) the laws of the impaired insurer's state or country of domicile provide that, until all payments of, or on account of, the impaired insurer's contractual obligations by all guaranty associations, along with all expenses thereof and interest on all such payments and expenses, shall have been repaid to the guaranty associations or a plan of repayment by the impaired insurer shall have been approved by the guaranty associations,
(i) the delinquency proceeding shall not be dismissed,
(ii) neither the impaired insurer nor its assets shall be returned to the control of its shareholders or private management, and
(iii) it shall not be permitted to solicit or accept new business or have any suspended or revoked license restored; and
(b) (i) in the case of a domestic insurer, it has been placed under an order of receivership or rehabilitation by a court of competent jurisdiction in this State, or
(ii) in the case of a foreign or alien insurer, it has been prohibited from soliciting or accepting new contracts in this State, except as approved by the commissioner and as part of a plan of rehabilitation approved by a court of competent jurisdiction.
(3) (a) The limitations of paragraphs (3) and (4) of subsection c. of section 3 of this act shall not preclude the association from providing more extensive coverage or guarantees, if it is proceeding under the authority of this section and if that additional coverage is an essential element in allowing a rehabilitation plan to succeed as determined by the commissioner and a court of competent jurisdiction.
(b) The commissioner and the association shall utilize the authority of this section if a reasonable prospect exists that the ultimate liabilities to be paid by the association and its member insurers will be reduced as compared to the present liabilities incurred if the association were to proceed under paragraph (2) of subsection d. of section 3 of this act.
(c) In proceeding under paragraph (1) of subsection b. of this section, without limitation on any authority or right of the association under this act or any right of contract, the association may enter into agreements with other guaranty associations to secure coordination between associations and performance by those associations with respect to policy or contract holders covered by those associations equivalent to that provided to individuals covered by this act.
(d) In proceeding under paragraph (1) of subsection b. of this section, any funds actually expended by a member insurer for benefits received by a person covered by this act, which were subject to a plan of rehabilitation approved by the commissioner and a court of competent jurisdiction, shall qualify as an assessment under section 8 of this act after a final accounting.
(e) When the association is proceeding under paragraph (1) of subsection b. of this section, the court shall authorize the establishment of liens upon policy and contract holder cash surrender values and cash withdrawal values limiting the ability of policy and contract holders to withdraw deposits, surrender their policies or contracts and receive the net cash surrender values and net cash withdrawal values, for a term of not less than three nor more than five years. The court, in establishing liens upon cash surrender values or cash withdrawal values, shall approve such liens upon the motion of the receiver as are necessary to enable the impaired insurer to meet its death and disability claims and fund the necessary operating expenses associated with its receivership to the greatest extent possible with the available assets of the impaired insurer within the time period covered by rehabilitation plan. The standard to be applied by the court with respect to preferential treatment is that all options offered to policy and contract holders must represent the same pro rata claim on the general account assets of the impaired insurer and be actuarially equivalent in present value terms at the time they are approved.
c. If a member insurer is an insolvent insurer, the association shall, in its discretion, either:
(1) (a) guaranty, 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 those monies, pledges, guarantees, or other means as are reasonably necessary to discharge those obligations; or
(2) with respect only to life and health insurance policies, provide benefits and coverages in accordance with subsection d. of this section.
d. When proceeding under subparagraph (b) of paragraph (1) of subsection b. or paragraph (2) of subsection c. of this section, the association shall, with respect only to life and health insurance policies or contracts:
(1) 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 impaired or insolvent insurer, for claims incurred:
(a) with respect to group policies or 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 those policies or contracts;
(b) with respect to individual policies or contracts, not later than the earlier of the next renewal date, if any, under those 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 those policies or contracts;
(2) make a diligent effort to provide all known insureds, or group policyholders with respect to group policies or contracts, 30 days notice of the termination of the benefits provided; and
(3) with respect to individual policies or contracts, and with respect to individuals formerly insured under group policies or contracts who are not eligible for replacement group coverage, make available to each known insured, or owner of an individual policy or contract if other than the insured, substitute coverage on an individual basis in accordance with the provisions of paragraph (4) of this subsection, if the insured had a right under law or the terminated policy or contract to convert coverage to individual coverage or to continue an individual policy or contract 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 contract or had a right only to make changes in premium by class.
(4) (a) In providing the substitute coverage required by paragraph (3), the association may offer either to reissue the terminated coverage or to issue an alternative policy or contract.
(b) Alternative or reissued policies or contracts 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 or contract.
(c) The association may reinsure any alternative or reissued policy or contract.
(5) (a) Alternative policies or contracts adopted by the association shall be subject to the approval of the commissioner.
(b) Alternative policies or contracts 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 under reasonable actuarial assumptions. 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.
(c) Any alternative policy or contract issued by the association shall provide coverage of a type similar to that of the policy or contract issued by the impaired or insolvent insurer, as determined by the association.
(6) If the association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy or contract, 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 commissioner.
(7) The association's obligations with respect to coverage under any policy or contract of the impaired or insolvent insurer or under any reissued or alternative policy or contract shall cease on the date that coverage, policy or contract is replaced by another similar coverage, policy or contract by the policyholder or the insured.
e. When proceeding under subparagraph (b) of paragraph (1) of subsection b. or subsection c. of this section 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 at least equal to that specified in paragraph (3) of subsection c. of section 3 of this act.
f. Nonpayment of premiums within 31 days after the date required, after effective notice shall have been given of the terms of any guaranteed, assumed, alternative or reissued policy or contract or substitute coverage, shall terminate the association's obligations under that policy, contract or coverage under this act with respect to that policy, contract 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 act.
g. Premiums due for coverage after entry of an order of receivership or liquidation of any insolvent insurer shall belong to, and be payable at the direction of, the association.
h. The protection provided by this act shall not apply if any guaranty protection is provided to residents of this State by the law of the domiciliary state or jurisdiction of the impaired or insolvent insurer other than this State.
i. In carrying out its duties under subsections b. and c. of this section, the association may, subject to approval by the court:
(1) impose reasonable and necessary policy or contract liens in connection with any guaranty, assumption or reinsurance agreement, if the association finds that the amounts which can be assessed under this act are less than the amounts needed to assure full and prompt performance of the association's duties under this act, or that the economic or financial conditions as they affect member insurers are sufficiently adverse to render the imposition of those policy or contract liens, to be in the public interest; or
(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.
j. If the association fails to act within a reasonable period of time as provided in subparagraph (b) of paragraph (1) of subsection b. and subsections c. and d. of this section, the commissioner shall have the powers and duties of the association provided by this act with respect to impaired or insolvent insurers.
k. The association may render assistance and advice to the commissioner concerning the receivership, conservation, rehabilitation, liquidation, payment of claims, continuance of coverage, or the performance of other contractual obligations of any impaired or insolvent insurer.
l. The association shall have standing to appear before any court in this State with jurisdiction over an impaired or insolvent insurer with respect to which the association is or may become obligated under this act. That 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 termination of the policies or contracts and contractual obligations. The association shall also have the right to appear or intervene before a court in another state with jurisdiction over an impaired or insolvent insurer for which the association is or may become obligated or with jurisdiction over a third party against whom the association may have rights through subrogation of the insurer's policyholders.
m. (1) Any person receiving benefits under this act shall be deemed to have assigned the rights under, and any causes of action relating to, the covered policy or contract to the association to the extent of the benefits received pursuant to this act, 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 act upon that person.
(2) The subrogation rights of the association under this subsection 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 act.
(3) In addition to the rights of subrogation contained in paragraphs (1) and (2) of this subsection, the association shall have all common law rights of subrogation and any other equitable or legal remedy which would have been available to the impaired or insolvent insurer or holder of a policy or contract with respect to that policy or contract.
(4) In addition to the rights contained in paragraphs (1), (2) and (3) of this subsection, in the case of any unallocated annuity contract for which benefits are paid by the association under this act, the association shall be deemed to have assigned to it the rights and causes of action of any employee or association of natural persons against the contract holder of such unallocated annuity contract for the amounts paid by the association under this act.
n. The association may:
(1) enter into any contracts necessary or proper to carry out the provisions and purposes of this act;
(2) sue or be sued, including taking any legal actions necessary or proper to recover any unpaid assessments imposed pursuant to section 8 of this act and to settle claims or potential claims against it;
(3) borrow money to effectuate the purposes of this act. 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 persons necessary to handle the financial transactions of the association, and to perform other functions as are necessary or proper under this act;
(5) take any legal action necessary to avoid payment of improper claims;
(6) exercise, for the purposes of this act and to the extent approved by the commissioner, the powers of a domestic life or health insurer, but in no case shall the association issue insurance policies or annuity contracts other than those issued to perform its obligations under this act.
o. 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.
We hope you find our tools helpful, please visit www.thelegalassistant.com for further information on our other free legal tools and products including LPO compliant legal case management software.