II

103D CONGRESS

2D SESSION S. 1989

To prohibit the transfer and novation of an insurance policy without the

prior informed written consent of the policyholder, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MARCH 25 (legislative day, FEBRUARY 22), 1994

Mr. METZENBAUM (for himself and Mr. BRYAN) introduced the following bill;

which was read twice and referred to the Committee on Commerce,

Science, and Transportation

A BILL

To prohibit the transfer and novation of an insurance policy

without the prior informed written consent of the policyholder, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Insurance Policy

5 Transfer Act’’.

6 SEC. 2. PURPOSE.

7 It is the purpose of this Act to prohibit the transfer

8 and novation of a contract of insurance without the prior

9 informed written consent of the policyholder.
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1 SEC. 3. DEFINITIONS.

2 As used in this Act:

3 (1) ASSUMING INSURER.—The term ‘‘assuming

4 insurer’’ means an insurer that assumes an insur5 ance obligation or risk, or both, from a transferring

6 insurer pursuant to a transfer agreement.

7 (2) TRANSFERRING INSURER.—The term

8 ‘‘transferring insurer’’ means an insurer that trans9 fers insurance obligations or risks, or both, of exist10 ing or in-force contracts of insurance to an assuming

11 insurer pursuant to a transfer agreement.

12 (3) TRANSFER AGREEMENT.—The term ‘‘trans13 fer agreement’’ means a contract that—

14 (A) transfers insurance obligations or

15 risks, or both, of existing or in-force contracts

16 of insurance from a transferring insurer to an

17 assuming insurer; and

18 (B) is intended to effect a novation of the

19 transferred contract of insurance with the re20 sult that—

21 (i) the assuming insurer becomes di22 rectly liable to the policyholders of the

23 transferring insurer; and

24 (ii) the insurance obligations or risks,

25 or both, of the transferring insurer under

26 the contract are extinguished.
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1 (4) CONTRACT OF INSURANCE.—The term

2 ‘‘contract of insurance’’ means a written agreement

3 between an insurer and a policyholder pursuant to

4 which the insurer, in exchange for a premium or

5 other consideration, agrees to assume an obligation

6 or risk, or both, of the policyholder, or to make pay7 ments on behalf of, or to, the policyholder or his or

8 her beneficiaries. The term includes all property,

9 casualty, life, health, accident, surety, title, and an10 nuity business authorized to be written pursuant to

11 the laws of any State.

12 SEC. 4. NOTICE.

13 (a) REQUIREMENT.—Except as provided in section 6,

14 no insurer shall enter into a transfer agreement or trans15 fer a contract of insurance pursuant to a transfer agree16 ment unless the transferring insurer has first provided or

17 caused to be provided to each policyholder of the insurer

18 affected by the agreement a notice of the intent of the

19 insurer to transfer the contract of insurance held by such

20 policyholder in accordance with this section.

21 (b) FORM OF NOTICE.—The notice shall be sent by

22 first-class mail, addressed to the last known address of

23 the policyholder or to the address to which premium no24 tices or other policy documents are sent or, with respect

25 to home service business, by personal delivery with ac-
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1 knowledged receipt. A notice of intent to transfer shall

2 also be sent to the transferring insurer’s agent or broker

3 of record on the affected policy.

4 (c) CONTENT OF NOTICE.—The notice required by

5 subsection (a) shall state or provide—

6 (1) the date the intended transfer and novation

7 of the contract of insurance of the policyholder is

8 proposed to take place and become effective;

9 (2) the name, address, and telephone number of

10 the transferring insurer and the assuming insurer

11 under the proposed transfer agreement;

12 (3) that the transfer and novation of the insur13 ance contract of the policyholder cannot take effect

14 without the written consent of the policyholder, ex15 cept as provided in section 5 of this Act;

16 (4) the procedures and any time limitation for

17 consenting to the transfer and novation;

18 (5) a summary informing the policyholder re19 garding any adverse effect that the policyholder

20 might experience as a result of consenting to the

21 transfer and novation;

22 (6) a statement that, without the written con23 sent of the policyholder, the transferring insurer will

24 remain as the insurance company of the policyholder
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1 or beneficiary, except as provided in section 5 of this

2 Act;

3 (7) a statement that the assuming insurer is li4 censed to write the type of business being trans5 ferred in the State where the policyholder resides, or

6 is otherwise authorized, under applicable law, to as7 sume such business;

8 (8) the name, address, and telephone number of

9 the person designated by the transferring insurer as

10 the person for receiving the written consent of the

11 policyholder affected by the proposed transfer and

12 novation;

13 (9) the address and telephone number of the

14 chief insurance regulatory official of the State in

15 which the policyholder resides;

16 (10) financial data for the transferring insurer

17 and the assuming insurer involved in the proposed

18 transfer agreement, including—

19 (A)(i) the ratings, together with enough in20 formation to understand where the ratings fall

21 within the range of rating categories of each

22 rating agency, for the last 5 years, if available,

23 or if not available for 5 years, for such lesser

24 period as is available, from each nationally rec25 ognized insurance company rating organization
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1 that has rated the insurer, including an expla2 nation of the meaning of each rating category

3 of each rating organization;

4 (ii) if ratings are unavailable for any year

5 of the 5-year period, a disclosure of this fact;

6 and

7 (iii) a statement that any or all of the

8 above insurance company rating organization

9 reports may be obtained at no cost by writing

10 or calling an address or phone number listed in

11 the statement;

12 (B) a balance sheet as of December 31 for

13 each of the 3 years immediately preceding the

14 notice, if available, or for such lesser period as

15 is available, and as of the date of the most re16 cent quarterly statement;

17 (C) a copy of the Management’s Discus18 sion and Analysis that was filed as a supple19 ment to the annual statement of the preceding

20 year; and

21 (D) an explanation of the reason for the

22 proposed transfer signed by the highest execu23 tive official of the transferring insurer and the

24 assuming insurer;
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1 (11) a statement setting forth the financial con2 dition of the transferring insurer and of the assum3 ing insurer under the proposed transfer agreement,

4 and the effect the transaction will have on the finan5 cial condition of each such insurer;

6 (12) an opinion by a disinterested third-party

7 expert, such as an actuary, finding that the transfer

8 is fair and in the best interests of the policyholders

9 affected by the transfer, and a statement that the

10 report on which the opinion is based is available at

11 no cost by writing or calling an address and phone

12 number listed in the statement;

13 (13)(A) a statement by the chief insurance reg14 ulatory official of the States of domicile of the trans15 ferring and accepting companies finding that—

16 (i) the proposed transfer is fair, reason17 able, and in the best interests of the policy18 holders of the transferring insurer and the as19 suming insurer; and

20 (ii) the notice of the proposed transfer re21 quired by this Act is fair, adequate, and not

22 misleading; and

23 (B) a statement that the report on which the

24 finding is based is available at no cost by writing or
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1 calling an address and phone number listed in the

2 statement; and

3 (14) a statement describing the effect of the

4 transfer, if any, on the State insurance guaranty

5 fund coverage, if any, of the policyholder or bene6 ficiary.

7 SEC. 5. CONSENT REQUIREMENT.

8 (a) PROHIBITED TRANSFERS.—Except as provided in

9 subsection (b), no insurer shall enter into a transfer agree10 ment or transfer a contract of insurance pursuant to a

11 transfer agreement without the written consent of the pol12 icyholder or a beneficiary of the policyholder.

13 (b) IMPLIED CONSENT.—A transfer of an insurance

14 contract may take place without the written consent of the

15 insured if—

16 (1) the transferring insurer and the assuming

17 insurer are rated by the same 3 insurance company

18 rating organizations for each of the 3 years imme19 diately preceding the transfer;

20 (2) the rating by each of the 3 insurance com21 pany rating organizations for the assuming insurer

22 is the highest possible rating or is a higher rating

23 than the transferring insurer; and

24 (3) the policyholder or beneficiary—
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1 (A) has been provided with the notice re2 quired by section 4 not sooner than February

3 28 and not later than May 1 of each of the 3

4 years immediately preceding the transfer pursu5 ant to this section; and

6 (B) has not responded to the notice with

7 an objection to the transfer or transaction prior

8 to the expiration of the 90-day-period beginning

9 on the date the third notice is sent pursuant to

10 subparagraph (A).

11 SEC. 6. TRANSFERS NOT SUBJECT TO THE ACT.

12 Subject to such regulations as the Secretary of Com13 merce shall issue, this Act shall not apply to—

14 (1) a transfer agreement or transaction in

15 which the transferring insurer continues to remain

16 directly liable for its insurance obligations or risks,

17 or both, under the contracts of insurance subject to

18 the transfer agreement;

19 (2) the substitution of one insurer for another

20 upon the expiration of insurance coverage pursuant

21 to statutory or contractual requirements and the

22 issuance of a new contract of insurance by another

23 insurer;

24 (3) the transfer of contracts of insurance pur25 suant to mergers or consolidations of 2 or more in-
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1 surers to the extent that those transactions are reg2 ulated by the laws of the affected State or States;

3 and

4 (4) an insurer subject to a judicial order of liq5 uidation or rehabilitation.

6 SEC. 7. REGULATIONS.

7 The Secretary of Commerce shall promulgate such

8 regulations as may be necessary to carry out this Act.

9 SEC. 8. CAUSE OF ACTION.

10 (a) REMEDIES.—In any case in which an insurer vio11 lates this Act regarding a policyholder, the policyholder

12 or the Attorney General may bring an action for relief in

13 the appropriate United States district court.

14 (b) JURISDICTION.—The United States district court

15 for the judicial district in which a policyholder resides, or

16 in which a transferring insurer or assuming insurer is in17 corporated, or licensed to do business or is doing business,

18 shall have jurisdiction over an action brought pursuant to

19 this section.

20 (c) VENUE.—The judicial district in which a policy21 holder resides, or in which a transferring insurer or as22 suming insurer is incorporated, is licensed to do business,

23 or is doing business shall be regarded as the residence of

24 such corporation for venue purposes.
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1 (d) RELIEF.—The district court shall have jurisdic2 tion to grant such relief as is necessary or appropriate

3 to redress a violation of this Act, including—

4 (1) permanent or temporary injunctive relief;

5 (2) compensatory damages;

6 (3) punitive damages; and

7 (4) costs, including reasonable attorneys’ fees.

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