ENROLLED
COMMITTEE SUBSTITUTE
FOR
H. B. 3278
(By Delegates Perry, Ashley and Moore)
[Passed April 11, 2009; in effect ninety days from passage.]
AN ACT to amend and reenact §33-26A-3, §33-26A-5, §33-26A-6, §33-
26A-8, §33-26A-9, §33-26A-10 and §33-26A-18 of the Code of
West Virginia, 1931, as amended, all relating to the life and
health insurance guaranty association; making specific
provision for treatment of unallocated annuity contracts and
structured settlement contracts; providing how payments to
residents and nonresidents are determined; providing that
duplicate payments not be made; excluding certain policies,
portions of policies and obligations from coverage; setting
new limits on coverage for various types of policies and
contracts; defining terms; changing the composition of the
annuity and unallocated annuity accounts; eliminating the
association's power to make loans to an insolvent insurer and
making other changes to its powers and duties; increasing the permissible maximum annual pro rata assessment; setting forth
a process for the protest of assessments; mandating that
members comply with requests for information from the
association; requiring that the plan of operation include
provisions for removing a director for cause and addressing
conflicts of interest; and increasing the length of the stay
of court proceedings involving an insolvent insurer.
Be it enacted by the Legislature of West Virginia:
That §33-26A-3, §33-26A-5, §33-26A-6, §33-26A-8, §33-26A-9,
§33-26A-10 and §33-26A-18 of the Code of West Virginia, 1931, as
amended, be amended and reenacted, all to read as follows:
§33-26A-3. Scope of article; policies and contracts covered;
exclusions; extent of liability.
(a) This article shall provide coverage for the policies and
contracts specified in subsection (b) of this section:
(1) To persons who, regardless of where they reside, are the
beneficiaries, assignees or payees of the persons covered under
subdivision (2) of this subsection
: Provided, That the provisions
of this subdivision shall not apply to nonresident certificate
holders under group policies or contracts;
(2) To persons who are owners of or certificate holders under
such policies or contracts, other than unallocated annuity
contracts and structured settlement annuities, and in each case
who:
(A) Are residents of this state; or
(B) Are not residents of this state, but only under all of the
following conditions:
(i) The insurer that issued the policies or contracts is
domiciled in this state;
(ii) The states in which the persons reside have associations
similar to the association created by this article; and
(iii) The persons are not eligible for coverage by an
association in any other state because the insurer was not licensed
in the state at the time specified in the state's guaranty
association law.
(3) For unallocated annuity contracts specified in
subdivisions (1) and (2), subsection (b) of this section shall not
apply, and this article shall, except as provided in subdivisions
(5) and (6) of this subsection, provide coverage to:
(A) Persons who are the owners of the unallocated annuity
contracts if the contracts are issued to or in connection with a
specific benefit plan whose plan sponsor has its principal place of
business in this state; and
(B) Persons who are owners of unallocated annuity contracts
issued to or in connection with government lotteries if the owners
are residents.
(4) For structured settlement annuities specified in
subdivisions (1) and (2), subsection (b) of this section shall not apply, and this article shall, except as provided in subdivisions
(5) and (6) of this subsection, provide coverage to a person who is
a payee under a structured settlement annuity or beneficiary of a
payee if the payee is deceased, if the payee:
(A) Is a resident, regardless of where the contract owner
resides; or
(B) Is not a resident, but only under both of the following
conditions:
(i) (I) The contract owner of the structured settlement
annuity is a resident; or
(II) The contract owner of the structured settlement annuity
is not a resident, but the insurer that issued the structured
settlement annuity is domiciled in this state and the state in
which the contract owner resides has an association similar to the
association created by this article; and
(ii) Neither the payee or beneficiary nor the contract owner
is eligible for coverage by the association of the state in which
the payee or contract owner resides.
(5) This article shall not provide coverage to:
(A) A person who is a payee or beneficiary of a contract owner
resident of this state, if the payee or beneficiary is afforded any
coverage by the association of another state; or
(B) A person covered under subdivision (3) of this subsection,
if any coverage is provided by the association of another state to the person.
(6) This article is intended to provide coverage to a person
who is a resident of this state and, in special circumstances, to
a nonresident. In order to avoid duplicate coverage, if a person
who would otherwise receive coverage under this article is provided
coverage under the laws of any other state, the person shall not be
provided coverage under this article. In determining the
application of the provisions of this subdivision in situations
where a person could be covered by the association of more than one
state, whether as an owner, payee, beneficiary or assignee, this
article shall be construed in conjunction with other state laws to
result in coverage by only one association.
(b) Coverage as provided by this article shall be as follows:
(1) This article shall provide coverage to the persons
specified in subsection (a) of this section for direct, nongroup
life, health, and annuity policies or contracts, for any
supplemental policies to the foregoing, for certificates under
direct group policies and contracts, and for unallocated annuity
contracts, issued by member insurers, except as limited by this
article. Annuity contracts and certificates under group annuity
contracts include, but are not limited to, guaranteed investment
contracts, deposit administration contracts, unallocated funding
agreements, allocated funding agreements, structured settlement
annuities, annuities issued in connection with government lotteries and any immediate or deferred annuity contracts.
(2) This article shall not provide coverage for:
(A) A portion of a policy or contract not guaranteed by the
insurer, or under which the risk is borne by the policy or contract
owner;
(B) A policy or contract of reinsurance, unless assumption
certificates have been issued pursuant to the reinsurance policy or
contract;
(C) A portion of a policy or contract to the extent that the
rate of interest on which it is based, or the 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:
(i) Averaged over the period of four years prior to the date
on which the member insurer becomes an impaired or insolvent
insurer under this article, exceeds a rate of interest determined
by subtracting two percentage points from Moody's Corporate Bond
Yield Average averaged for that same four-year period or for such
lesser period if the policy or contract was issued less than four
years before the member insurer becomes an impaired or insolvent
insurer under this article, whichever is earlier; and
(ii) On and after the date on which the member insurer becomes
an impaired or insolvent insurer under this article, whichever is
earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average
as most recently available;
(D) A portion of a policy or contract issued to a plan or
program of an employer, association or other person to provide
life, health or annuity benefits to its employees, members or
others, to the extent that the plan or program is self-funded or
uninsured, including, but not limited to, benefits payable by an
employer, association or other person under:
(i) A multiple employer welfare arrangement as defined in
section 514 of the Employee Retirement Income Security Act of 1974,
29 U.S.C. §1144, as amended;
(ii) A minimum premium group insurance plan;
(iii) A stop-loss group insurance plan; or
(iv) An administrative services only contract;
(E) A portion of a policy or contract to the extent that it
provides for dividends or experience rating credits, voting rights,
or payment of any fees or allowances to any person, including the
policy or contract owner, in connection with the service to or
administration of the policy or contract;
(F) A policy or contract issued in this state by a member
insurer at a time when it was not licensed or did not have a
certificate of authority to issue the policy or contract in this
state;
(G) An unallocated annuity contract issued to an employee benefit plan protected under the federal pension benefit guaranty
corporation, regardless of whether the federal pension benefit
guaranty corporation has yet become liable to make any payments
with respect to the benefit plan; and
(H) A portion of any unallocated annuity contract which is not
issued to or in connection with a specific employee, union or
association of natural persons benefit plan or a government
lottery.
(I) A portion of a policy or contract to the extent that the
assessments required by section nine of this article with respect
to the policy or contract are preempted by federal or state law;
(J) An obligation that does not arise under the express
written terms of the policy or contract issued by the insurer to
the contract owner or policy owner, including without limitation:
(i) Claims based on marketing materials;
(ii) Claims based on side letters, riders or other documents
that were issued by the insurer without meeting applicable policy
form filing or approval requirements;
(iii) Misrepresentations of or regarding policy benefits;
(iv) Extra-contractual claims; or
(v) A claim for penalties or consequential or incidental
damages;
(K) A contractual agreement that establishes the member
insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to
a portfolio of assets that is owned by the benefit plan or its
trustee, which in each case is not an affiliate of the member
insurer;
(L) A portion of a policy or contract to the extent it
provides for interest or other changes in value to be determined by
the use of an index or other external reference stated in the
policy or contract, but which have not been credited to the policy
or contract, or as to which the policy or contract owner's rights
are subject to forfeiture, as of the date the member insurer
becomes an impaired or insolvent insurer under this article,
whichever is earlier. If a policy's or contract's interest or
changes in value are credited less frequently than annually, then
for purposes of determining the values that have been credited and
are not subject to forfeiture, the interest or change in value
determined by using the procedures defined in the policy or
contract will be credited as if the contractual date of crediting
interest or changing values was the date of impairment or
insolvency, whichever is earlier, and will not be subject to
forfeiture.
(M) A policy or contract providing any hospital, medical,
prescription drug or other health care benefits pursuant to Part C
or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the United
States Code (commonly known as Medicare Part C & D) or any regulations issued pursuant thereto.
(c) The benefits that the association may become liable for
shall in no event exceed the lesser of:
(1) The contractual obligations for which the insurer is
liable or would have been liable if it were not an impaired or
insolvent insurer; or
(2) (A) With respect to any one life, regardless of the number
of policies or contracts:
(i) Three hundred thousand dollars in life insurance death
benefits, but no more than $100,000 in net cash surrender and net
cash withdrawal values for life insurance;
(ii) In health insurance benefits:
(I) One hundred thousand dollars for coverages not defined as
disability insurance or basic hospital, medical and surgical
insurance or major medical insurance or long-term care insurance as
defined in section four, article fifteen-a, of this chapter,
including any net cash surrender and net cash withdrawal values;
(II) Three hundred thousand dollars for disability insurance
and $300,000 for long-term care insurance as defined in section
four, article fifteen-a of this chapter;
(III)
$500,000 for basic hospital, medical and surgical
insurance or major medical insurance; or
(iii) $250,000 in the present value of annuity benefits,
including net cash surrender and net cash withdrawal values;
(B) With respect to each individual participating in a
governmental retirement plan established under section 401, 403(b)
or 457 of the United States Internal Revenue Code covered by an
unallocated annuity contract or the beneficiaries of each such
individual if deceased, in the aggregate, $250,000 in present value
annuity benefits, including net cash surrender and net cash
withdrawal values.
(C) With respect to each payee of a structured settlement
annuity, or beneficiary or beneficiaries of the payee if deceased,
$250,000 in present value annuity benefits, in the aggregate,
including net cash surrender and net cash withdrawal value;
(D) However, in no event shall the association be obligated to
cover more than:
(i) An aggregate of $300,000 in benefits with respect to any
one life under paragraphs (A), (B) and (C) of this subdivision
except with respect to benefits for basic hospital, medical and
surgical insurance and major medical insurance under subparagraph
(ii), paragraph (A) of this subdivision, in which case the
aggregate liability of the association shall not exceed $500,000
with respect to any one individual, or
(ii) With respect to one owner of multiple nongroup policies
of life insurance, whether the policy owner is an individual, firm,
corporation or other person, and whether the persons insured are
officers, managers, employees or other persons, more than $5 million in benefits, regardless of the number of policies and
contracts held by the owner.
(E) With respect to either one contract owner provided
coverage under paragraph (B), subdivision (3), subsection (a) of
this section or one plan sponsor whose plans own directly or in
trust one or more unallocated annuity contracts not included in
paragraph (B), subdivision (2) of this subsection, $5 million in
benefits, irrespective of the number of contracts with respect to
the contract owner or plan sponsor. However, in the case where one
or more unallocated annuity contracts are covered contracts under
this article and are owned by a trust or other entity for the
benefit of two or more plan sponsors, coverage shall be afforded by
the association if the largest interest in the trust or entity
owning the contract or contracts is held by a plan sponsor whose
principal place of business is in this state. In no event shall
the association be obligated to cover more than $5 million in
benefits with respect to all of these unallocated contracts.
(F) The limitations set forth in this subsection are
limitations on the benefits for which the association is obligated
before taking into account either its subrogation and assignment
rights or the extent to which those benefits could be provided out
of the assets of the impaired or insolvent insurer attributable to
covered policies. The costs of the association's obligations under
this article may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its
subrogation and assignment rights.
(d) In performing its obligations to provide coverage under
section eight of this article, the association shall not be
required to guarantee, assume, reinsure or perform, or cause to be
guaranteed, assumed, reinsured or performed, the contractual
obligations of the insolvent or impaired insurer under a covered
policy or contract that do not materially affect the economic
values or economic benefits of the covered policy or contract.
§33-26A-5. Definitions.
As used in this article:
(1) "Account" means either of the two accounts created under
section six of this article.
(2) "Association" means the West Virginia Life and Health
Insurance Guaranty Association created under section six of this
article.
(3) "Authorized assessment" or the term "authorized" when used
in the context of assessments means a resolution by the board of
directors has been passed whereby an assessment will be called
immediately or in the future from member insurers for a specified
amount. An assessment is authorized when the resolution is passed.
(4) "Basic hospital, medical and surgical insurance or major
medical insurance" means accident and sickness insurance subject to
the provisions of articles fifteen and sixteen of this chapter and benefits provided by articles twenty-four and twenty-five of this
chapter, but excludes any accident and sickness insurance in which
the medical care is secondary or incidental to other benefits and
also excludes insurance included within the definition of excluded
benefits set forth in subsection (f), section one-a, article
sixteen of this chapter.
(5) "Benefit plan" means a specific employee, union or
association of natural persons benefit plan.
(6) "Called assessment" or the term "called" when used in the
context of assessments means that a notice has been issued by the
association to member insurers requiring that an authorized
assessment be paid within the time frame set forth within the
notice. An authorized assessment becomes a called assessment when
notice is mailed by the association to member insurers.
(7) "Commissioner" means the Commissioner of Insurance of this
state.
(8) "Contractual obligation" means any obligation under a
policy or contract or certificate under a group policy or contract,
or portion thereof for which coverage is provided under section
three of this article.
(9) "Covered policy" means any policy or contract within the
scope of this article under section three of this article.
(10) "Extra-contractual claims" shall include claims such as
those relating to bad faith in the payment of claims, punitive or exemplary damages or attorneys' fees and costs.
(11) "Impaired insurer" means a member insurer which, after
the effective date of this article, is not an insolvent insurer,
and (1) is deemed by the commissioner to be potentially unable to
fulfill its contractual obligations or (2) is placed under an order
of rehabilitation or conservation by a court of competent
jurisdiction.
(12) "Insolvent insurer" means a member insurer which, after
the effective date of this article, is placed under an order of
liquidation by a court of competent jurisdiction with a finding of
insolvency.
(13) "Member insurer" means any insurer licensed or which
holds a certificate of authority to transact in this state any kind
of insurance for which coverage is provided under section three of
this article, and includes an insurer whose license or certificate
of authority in this state may have been suspended, revoked, not
renewed or voluntarily withdrawn, and includes nonprofit service
corporations as defined in article twenty-four of this chapter and
health care corporations as defined in article twenty-five of this
chapter but does not include:
(A) A health maintenance organization;
(B) A fraternal benefit society;
(C) A mandatory state pooling plan;
(D) A mutual assessment company or any entity that operates on an assessment basis;
(E) An insurance exchange;
(F) An organization which has a certificate or license limited
to the issuance of charitable gift annuities under article
thirteen-b of this chapter; or
(G) Any entity similar to any of the above.
(14) "Moody's Corporate Bond Yield Average" means the Monthly
Average Corporates as published by Moody's Investors Service, Inc.,
or any successor thereto.
(15) "Owner" of a policy or contract and "policy owner" and
"contract owner" mean the person who is identified as the legal
owner under the terms of the policy or contract or who is otherwise
vested with legal title to the policy or contract through a valid
assignment completed in accordance with the terms of the policy or
contract and properly recorded as the owner on the books of the
insurer. The terms owner, contract owner and policy owner do not
include persons with a mere beneficial interest in a policy or
contract.
(16) "Person" means any individual, corporation, partnership,
association or voluntary organization.
(17) "Plan sponsor" means:
(A) The employer in the case of a benefit plan established or
maintained by a single employer;
(B) The employee organization in the case of a benefit plan established or maintained by an employee organization; or
(C) In a case of a benefit plan established or maintained by
two or more employers or jointly by one or more employers and one
or more employee organizations, the association, committee, joint
board of trustees, or other similar group of representatives of the
parties who establish or maintain the benefit plan.
(18) "Premiums" means amounts or considerations (by whatever
name called) received on covered policies or contracts less
premiums, considerations and deposits returned thereon, and less
dividends and experience credits thereon. "Premiums" does not
include any amounts or considerations received for any policies or
contracts or for the portions of any policies or contracts for
which coverage is not provided under subsection (b), section three
of this article, except that assessable premium shall not be
reduced on account of paragraph (C), subdivision (2), subsection
(b), section three of this article relating to interest limitations
and subdivision (2), subsection (c), section three of this article
relating to limitations with respect to any one individual, any one
participant and any one contract owner. Premiums shall not include
:
(A) Premiums in excess of $5 million on any unallocated
annuity contract not issued under a government retirement plan
established under section 401, 403(b) or 457 of the United States
Internal Revenue Code; or
(B) With respect to multiple nongroup policies of life
insurance owned by one owner, whether the policy owner is an
individual, firm, corporation or other person, and whether the
persons insured are officers, managers, employees or other persons,
premiums in excess of $5 million with respect to these policies or
contracts, regardless of the number of policies or contracts held
by the owner.
(19) (A) "Principal place of business" of a plan sponsor or a
person other than a natural person means the single state in which
the natural persons who establish policy for the direction, control
and coordination of the operations of the entity as a whole
primarily exercise that function, determined by the association in
its reasonable judgment by considering the following factors:
(i) The state in which the primary executive and
administrative headquarters of the entity is located;
(ii) The state in which the principal office of the chief
executive officer of the entity is located;
(iii) The state in which the board of directors (or similar
governing person or persons) of the entity conducts the majority of
its meetings;
(iv) The state in which the executive or management committee
of the board of directors (or similar governing person or persons)
of the entity conducts the majority of its meetings;
(v) The state from which the management of the overall operations of the entity is directed;
(vi) In the case of a benefit plan sponsored by affiliated
companies comprising a consolidated corporation, the state in which
the holding company or controlling affiliate has its principal
place of business as determined using the above factors; and
(vii) In the case of a plan sponsor, if more than fifty
percent of the participants in the benefit plan are employed in a
single state, that state shall be deemed to be the principal place
of business of the plan sponsor.
(B) The principal place of business of a plan sponsor of a
benefit plan described in paragraph (C), subdivision (16) of this
section shall be deemed to be the principal place of business of
the association, committee, joint board of trustees or other
similar group of representatives of the parties who establish or
maintain the benefit plan that, in lieu of a specific or clear
designation of a principal place of business, shall be deemed to be
the principal place of business of the employer or employee
organization that has the largest investment in the benefit plan in
question.
(20) "Receivership court" means the court in the insolvent or
impaired insurer's state having jurisdiction over the conservation,
rehabilitation or liquidation of the insurer.
(21) "Resident" means a person to whom a contractual
obligation is owed and who resides in this state on the date of entry of a court order that determines a member insurer to be an
impaired insurer or a court order that determines a member insurer
to be an insolvent insurer, whichever occurs first. A person may
be a resident of only one state, which in the case of a person
other than a natural person shall be its principal place of
business. Citizens of the United States that are either residents
of foreign countries, or residents of United States possessions,
territories, or protectorates that do not have an association
similar to the association created by this article, shall be deemed
residents of the state of domicile of the insurer that issued the
policies or contracts.
(22) "Structured settlement annuity" means an annuity
purchased in order to fund periodic payments for a plaintiff or
other claimant in payment for or with respect to personal injury
suffered by the plaintiff or other claimant.
(23) "Health insurance" means accident and sickness insurance
as defined in subsection (b), section ten, article one of this
chapter
and benefits provided pursuant to articles twenty-four and
twenty-five of this chapter
.
(24) "Supplemental contract" means any agreement entered into
for the distribution of policy or contract proceeds.
(25) "Unallocated annuity contract" means any annuity contract
or group annuity certificate which is not issued to and owned by an
individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under such contract or certificate.
§33-26A-6. Creation of association; required accounts; supervision
of commissioner; meetings and records.
(a) There is created a nonprofit legal entity to be known as
the West Virginia Life and Health Insurance Guaranty Association.
All member insurers shall be and remain members of the association
as a condition of their authority to transact insurance in this
state. The association shall perform its functions under the plan
of operation established and approved under section ten of this
article and shall exercise its powers through a board of directors
established under section seven of this article. For purposes of
administration and assessment, the association shall maintain the
following two accounts:
(1) The life insurance and annuity account which includes the
following subaccounts:
(A) Life insurance account;
(B) Annuity account which shall include annuity contracts
owned by a governmental retirement plan or its trustee established
under section 401, 403(b) or 457 of the United States Internal
Revenue Code, but shall otherwise exclude unallocated annuities;
and
(C) Unallocated annuity account which shall exclude contracts
owned by a governmental retirement plan or its trustee established
under section 401, 403(b) or 457 of the United States Internal Revenue Code.
(2) The health insurance account.
(b) The association shall come under the immediate supervision
of the commissioner and shall be subject to the applicable
provisions of the insurance laws of this state. Meetings or records
of the association may be opened to the public upon majority vote
of the board of directors of the association.
§33-26A-8. Powers and duties of 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:
(1) Guarantee, assume, or reinsure, or cause to be guaranteed,
assumed or reinsured, any or all of the covered policies or
contracts of the impaired insurer; or
(2) Provide such moneys, pledges, notes, guarantees or other
means as are proper to effectuate subdivision (1) of this
subsection and assure payment of the contractual obligations of the
impaired insurer pending action under said subdivision (1).
(b) If a member insurer is an insolvent insurer, the
association shall, in its discretion, either:
(1) (A) (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
(B) Provide 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 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 such 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 such 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 these 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 such policies or contracts;
(B) Make diligent efforts to provide all known insureds or
annuitants or group policyholders with respect to group policies and contracts thirty days' notice of the termination of the
benefits provided pursuant to paragraph (A) of this subdivision;
and
(C) 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 paragraph (D) of this subdivision, 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 had
a right only to make changes in premium by class.
(D)(i) In providing the substitute coverage required under
paragraph (C) of this subdivision, 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 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 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 commissioner and the
receivership court.
(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 that the
coverage or policy is replaced by another similar policy by the
policyholder, the insured or the association.
(H) When proceeding under subdivision (2) of this subsection
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 paragraph (C),
subdivision (2), subsection (b), section three of this article.
(c) Nonpayment of premium 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 such policy or
coverage under this article with respect to such 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 article.
(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. If the liquidator of an
insolvent insurer requests, the association shall provide a report to the liquidator regarding such premium collected by the
association. The association shall be liable for unearned premiums
due to policy or contract owners arising after the entry of the
order.
(e) The protection provided by this article 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) of this
section, 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
article are less than the amounts needed to assure full and prompt
performance of the association's duties under this article, 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;
(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 the event of a temporary moratorium or moratorium charge imposed by the receivership court on 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, the association may defer the payment of cash
values, policy loans or other rights by the association for the
period of the moratorium or moratorium charge imposed by the
receivership court, except 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) A deposit in this state, held pursuant to law or required
by the commissioner for the benefit of creditors, including policy
owners, not turned over to the domiciliary liquidator upon the
entry of a final order of liquidation or order approving a
rehabilitation plan of an insurer domiciled in this state or in a
reciprocal state, pursuant to article ten of this chapter, shall be
promptly paid to the association. The association shall be
entitled to retain a portion of any amount so paid to it equal to
the percentage determined by dividing the aggregate amount of
policy owners claims related to that insolvency for which the
association has provided statutory benefits by the aggregate amount
of all policy owners' claims in this state related to that
insolvency and shall remit to the domiciliary receiver the amount
so paid to the association less the amount retained pursuant to
this subsection. Any amount so paid to the association and retained by it shall be treated as a distribution of estate assets
pursuant to article ten of this chapter.
(h) If the association fails to act within a reasonable period
of time with respect to an insolvent insurer as provided in
subsection (b) of this section, the commissioner shall have the
powers and duties of the association under this article with
respect to the insolvent insurer.
(i) The association may render assistance and advice to the
commissioner, upon his or her request, concerning rehabilitation,
payment of claims, continuance of coverage, or the performance of
other contractual obligations of any impaired or insolvent insurer.
(j) The association shall have standing to appear or intervene
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 article 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 a 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 of the insurer's
policyholders, payees or beneficiaries.
(k)(1) Any person receiving benefits under this article 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
article, 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 cause 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 article upon such 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 article.
(3) In addition to subdivisions (1) and (2) of this
subsection, 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 or
insured of a policy or contract with respect to such policy or
contracts.
(l) In addition to the rights and powers elsewhere in this
article, the association may:
(1) Enter into such contracts as are necessary or proper to
carry out the provisions and purposes of this article;
(2) Sue or be sued, including taking any legal actions
necessary or proper to recover any unpaid assessments under section
nine of this article and to settle claims or potential claims
against it;
(3) Borrow money to effect the purpose of this article; 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 article;
(5) Take such legal action as may be necessary to avoid or
recover payment of improper claims;
(6) Exercise, for the purposes of this article 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 its obligations under this article.
(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 article 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 article or to exercise its
powers under this article.
(m) 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.
(n) (1) (A) At any time within one hundred eighty 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.
(B) 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
(i) 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 (ii) 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.
(C) The following 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 liquidator;
(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 lesser of:
(I) The amount received by the association; and
(II) 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 thirty 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 subparagraph (ii) of
this paragraph, 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 sixty 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.
(2) During the period from the date of the order of
liquidation until the election date or, if the election date does
not occur, until one hundred eighty days after the date of the
order of liquidation,
(A) (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 (1) of this
subsection, 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;
(B) Provided that once the association has elected to assume
a reinsurance contract, the parties' rights and obligations shall
be governed by subdivision (1) of this subsection.
(3) If the association does not elect to assume a reinsurance
contract by the election date pursuant to subdivision (1) of this
subsection, 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.
(4) 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
(1) of this subsection, subject to the following:
(A) 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;
(B) The obligations described in subdivision (1) of this
subsection shall no longer apply with respect to matters arising
after the effective date of the transfer; and
(C) Notice shall be given in writing, return receipt
requested, by the transferring party to the affected reinsurer not
less than thirty days prior to the effective date of the transfer.
(5) The provisions of this subsection 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.
(6) Except as otherwise provided in this subsection, nothing
in this subsection shall alter or modify the terms and conditions
of any reinsurance contract. Nothing in this subsection shall
abrogate or limit any rights of any reinsurer to claim that it is
entitled to rescind a reinsurance contract. Nothing in this
subsection 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 subsection shall
limit or affect the association's rights as a creditor of the
estate against the assets of the estate. Nothing in this
subsection shall apply to reinsurance agreements covering property
or casualty risks.
(o) The board of directors of the association shall have
discretion and may exercise reasonable business judgment to
determine the means by which the association is to provide the
benefits of this article in an economical and efficient manner.
(p) Where the association has arranged or offered to provide
the benefits of this article to a covered person under a plan or
arrangement that fulfills the association's obligations under this
article, the person shall not be entitled to benefits from the
association in addition to or other than those provided under the
plan or arrangement.
(q) Venue in a suit against the association arising under the
article shall be in Kanawha County. The association shall not be
required to give an appeal bond in an appeal that relates to a
cause of action arising under this act.
(r) In carrying out its duties in connection with
guaranteeing, assuming or reinsuring policies or contracts under
subsections (a) or (b) of this section, 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
in the original policy or contract, the alternative policy or
contract provides for:
(i) A fixed interest rate;
(ii) Payment of dividends with minimum guarantees; or
(iii) 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.
§33-26A-9. Assessments.
(a) For the purpose of providing the funds necessary to carry
out the powers and duties of the association, the board of
directors shall assess the member insurers, separately for each
account, at such time and for such amounts as the board finds
necessary. Assessments shall be due not less than thirty days after prior written notice to the member insurers and shall accrue
interest at ten percent per annum on and after the due date.
(b) There shall be two assessments, as follows:
(1) Class A assessments shall be authorized and called for the
purpose of meeting administrative and legal costs and other
expenses. Class A assessments may be authorized and called whether
or not related to a particular impaired or insolvent insurer.
(2) Class B assessments shall be authorized and called to the
extent necessary to carry out the powers and duties of the
association under section eight of this article with regard to an
impaired or insolvent insurer.
(c)(1) The amount of any Class A assessment shall be
determined by the board and may be authorized and called on a pro
rata or nonpro rata basis. If pro rata, the board may provide that
it be credited against future Class B assessments. A nonpro rata
assessment shall not exceed $300 per member insurer in any one
calendar year. The amount of any Class B assessment shall be
allocated for assessment purposes among the accounts pursuant to an
allocation formula which may be based on the premiums or reserves
of the impaired or insolvent insurer or any other standard deemed
by the board in its sole discretion as being fair and reasonable
under the circumstances.
(2) Class B assessments against member insurers for each
account and subaccount shall be in the proportion that the premiums received on business in this state by each assessed member insurer
on policies or contracts covered by each account for the three most
recent calendar years for which information is available preceding
the year in which the insurer became impaired or insolvent, as the
case may be, bears to such premiums received on business in this
state for such calendar years by all assessed member insurers.
(3) Assessments for funds to meet the requirements of the
association with respect to an impaired or insolvent insurer shall
not be authorized or called until necessary to implement the
purposes of this article. Classification of assessments under
subsection (b) of this section and computation of assessments under
this subsection shall be made with reasonable degree of accuracy,
recognizing that exact determinations may not always be possible.
The association shall notify each member insurer of its anticipated
pro rata share of an authorized assessment not yet called within
one hundred eighty days after the assessment is authorized.
(d) The association may abate or defer, in whole or in part,
the assessment of a member insurer if, in the opinion of the board,
payment of the assessment would endanger the ability of the member
insurer to fulfill its contractual obligations. In the event an
assessment against a member insurer is abated, or deferred, in
whole or in part, the amount by which such assessment is abated or
deferred may be assessed against the other member insurers in a
manner consistent with the basis for assessments set forth in this section. Once the conditions that caused a deferral have been
removed or rectified, the member insurer shall pay all assessments
that were deferred pursuant to a repayment plan approved by the
association.
(e) (1) (A) Subject to the provisions of paragraph (B) of this
subdivision, the total of all assessments upon a member insurer for
each subaccount of the life and annuity account and for the health
account shall not in any one calendar year exceed two percent of
such insurer's average premiums received in this state on the
policies and contracts covered by the subaccount or account during
the three calendar years preceding the year in which the insurer
became an impaired or insolvent insurer.
(B) If two or more assessments are authorized in one calendar
year with respect to insurers that become impaired or insolvent in
different calendar years, the average annual premiums for purposes
of the aggregate assessment percentage limitation referenced in
paragraph (A) of this subdivision shall be equal and limited to the
higher of the three-year average annual premiums for the applicable
subaccount or account as calculated pursuant to this section.
(C) If the maximum assessment, together with the other assets
of the association in an account, does not provide in any one year
in either account an amount sufficient to carry out the
responsibilities of the association, the necessary additional funds
shall be assessed as soon thereafter as permitted by this article.
(2) The board may provide in the plan of operation a method of
allocating funds among claims, whether relating to one or more
impaired or insolvent insurers, when the maximum assessment will be
insufficient to cover anticipated claims.
(3) If the maximum assessment for any subaccount of the life
and annuity account in any one year does not provide an amount
sufficient to carry out the responsibilities of the association,
then pursuant to subdivision (2), subsection (c) of this section,
the board shall assess all subaccounts of the life and annuity
account for the necessary additional amount, subject to the maximum
stated in subdivision (1), subsection (e) of this section.
(f) The board may, by an equitable method as established in
the plan of operation, refund to member insurers, in proportion to
the contribution of each insurer to that account, the amount by
which the assets of the account exceed the amount the board finds
is necessary to carry out during the coming year the obligations of
the association with regard to that account, including assets
accruing from assignment, subrogation, net realized gains and
income from investments. A reasonable amount may be retained in
any account to provide funds for the continuing expenses of the
association and for future claims.
(g) It shall be proper for any member insurer, in determining
its premium rates and policy owner dividends as to any kind of
insurance within the scope of this article, to consider the amount reasonably necessary to meet its assessment obligations under this
article.
(h) The association shall issue to each insurer paying an
assessment under this article, other than Class A assessment, a
certificate of contribution, in a form prescribed by the
commissioner, for the amount of the assessment so paid. All
outstanding certificates shall be of equal dignity and priority
without reference to amounts or dates of issue. A certificate of
contribution may be shown by the insurer in its financial statement
as an asset in such form and for such amount, if any, and period of
time as the commissioner may approve.
(i) (1) A member insurer that wishes to protest all or part of
an assessment shall pay when due the full amount of the assessment
as set forth in the notice provided by the association. The
payment shall be available to meet association obligations during
the pendency of the protest or any subsequent appeal. Payment
shall be accompanied by a statement in writing that the payment is
made under protest and setting forth a brief statement of the
grounds for the protest.
(2) Within sixty days following the payment of an assessment
under protest by a member insurer, the association shall notify the
member insurer in writing of its determination with respect to the
protest unless the association notifies the member insurer that
additional time is required to resolve the issues raised by the protest.
(3) Within thirty days after a final decision has been made,
the association shall notify the protesting member insurer in
writing of that final decision. Within sixty days of receipt of
notice of the final decision, the protesting member insurer may
appeal that final action to the commissioner.
(4) In the alternative to rendering a final decision with
respect to a protest based on a question regarding the assessment
base, the association may refer protests to the commissioner for a
final decision, with or without a recommendation from the
association.
(5) If the protest or appeal on the assessment is upheld, the
amount paid in error or excess shall be returned to the member
company. Interest on a refund due a protesting member shall be
paid at the rate actually earned by the association.
(j) The association may request information of member insurers
in order to aid in the exercise of its power under this section and
member insurers shall promptly comply with a request.
§33-26A-10. Plan of operation.
(a) (1) The association shall submit to the commissioner a
plan of operation and any amendments thereto necessary or suitable
to assure the fair, reasonable and equitable administration of the
association. The plan of operation and any amendments thereto
shall become effective upon the commissioner's written approval or unless he or she has not disapproved of the same within thirty
days.
(2) If the association fails to submit a suitable plan of
operation within one hundred eighty days following the effective
date of this article or if at any time thereafter the association
fails to submit suitable amendments to the plan, the commissioner
shall, after notice and hearing, adopt and promulgate such
reasonable rules as are necessary or advisable to effectuate the
provisions of this article. Such rules shall continue in force
until modified by the commissioner or superseded by a plan
submitted by the association and approved by the commissioner.
(b) All member insurers shall comply with the plan of operation.
(c) The plan of operation shall, in addition to requirements
enumerated elsewhere in this article:
(1) Establish procedures for handling the assets of the
association;
(2) Establish the amount and method of reimbursing members of
the board of directors under section seven of this article;
(3) Establish regular places and times for meetings including
telephone conference calls of the board of directors;
(4) Establish procedures for records to be kept of all
financial transactions of the association, its agents, and the
board of directors;
(5) Establish the procedures whereby selections for the board of directors will be made and submitted to the commissioner;
(6) Establish any additional procedures for assessments under
section nine of this article;
(7) Contain additional provisions necessary or proper for the
execution of the powers and duties of the association;
(8) Establish procedures whereby a director may be removed for
cause, including in the case where a member insurer director
becomes an impaired or insolvent insurer; and
(9) Require the board of directors to establish a policy and
procedures for addressing conflicts of interests.
(d) The plan of operation may provide that any or all powers
and duties of the association, except those under subdivision (3),
subsection (l), section eight and section nine of this article, are
delegated to a corporation, association, or other organization
which performs or will perform functions similar to those of this
association, or its equivalent, in two or more states. Such a
corporation, association or organization shall be reimbursed for
any payments made on behalf of the association and shall be paid
for its performance of any function of the association. A
delegation under this subsection shall take effect only with the
approval of both the board of directors and the commissioner, and
may be made only to a corporation, association or organization
which extends protection not substantially less favorable and
effective than that provided by this article.
§33-26A-18. Stay of court proceedings; reopening default
judgments.
All proceedings in which the impaired or insolvent insurer is
a party in any court in this state shall be stayed one hundred
eighty days from the date an order of liquidation, rehabilitation
or conservation is final to permit proper legal action by the
association on any matters germane to its powers or duties. As to
a judgment under any decision, order, verdict or finding based on
default the association may apply to have the judgment set aside by
the same court that made the judgment and shall be permitted to
defend against the suit on the merits.