309
(4) that enables such creditor to receive more
than such creditor would receive if—
(A) the national insurer was liquidated
under this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such
debt to the extent provided by this title.
(b) PREFERENCE MAY BE AVOIDED.—Any pref-
erence may be avoided by the receiver if—
(1) the national insurer was insolvent at the
time of the transfer; and
(2)(A) the transfer was made within 120 days
before the filing of the petition;
(B) the creditor receiving it or benefited there-
by or his agent acting with reference thereto had, at
the time when the transfer was made, reasonable
cause to believe that the national insurer was insol-
vent or was about to become insolvent; or
(C) the creditor receiving or benefiting from the
transfer was—
(i) an officer or director of the national in-
surer;
(ii) an employee, attorney or other person
who was, in fact, in a position to effect a level
of control or influence over the actions of the
310
national insurer comparable to that of an offi-
cer, whether or not the person held such a posi-
tion; or
(iii) any shareholder owning or controlling
directly or indirectly more than 10 percent of
any class of any equity security issued by the
national insurer, or any other person, firm, cor-
poration, association or aggregation of persons
with whom the national insurer did not deal at
arm’s length.
(c) EXCEPTIONS.—The receiver may not avoid a
transfer under this section—
(1) to the extent that such transfer was—
(A) intended by the national insurer and
the creditor to or for whose benefit such trans-
fer was made to be a contemporaneous ex-
change for new value given to the national in-
surer; and
(B) in fact a substantially contempora-
neous exchange;
(2) to the extent that such transfer was in pay-
ment of a debt incurred by the national insurer in
the ordinary course of business or financial affairs
of the national insurer and the transferee and such
transfer was—
311
(A) made in the ordinary course of busi-
ness or financial affairs of the national insurer
and the transferee; or
(B) made according to ordinary business
terms;
(3) that creates a security interest in property
acquired by the national insurer—
(A) to the extent such security interest se-
cures new value that was—
(i) given at or after the signing of a
security agreement that contains a descrip-
tion of such property as collateral;
(ii) given by or on behalf of the se-
cured party under such agreement;
(iii) given to enable the national in-
surer to acquire such property;
(iv) in fact, used by the national in-
surer to acquire such property; and
(B) that is perfected on or before 21 days
or any other period expressly allowed by law,
whichever is less, after the national insurer re-
ceives possession of such property;
(4) to or for the benefit of a creditor, to the ex-
tent that, after such transfer, such creditor gave new
value to or for the benefit of the national insurer—
312
(A) not secured by an otherwise unavoid-
able security interest; and
(B) on account of which new value the na-
tional insurer did not make an otherwise un-
avoidable transfer to or for the benefit of such
creditor; and
(5) that creates a perfected security interest in
a receivable or its proceeds, except to the extent that
the aggregate of all such transfers to the transferee
caused a reduction, as of the date of the filing of the
petition and to the prejudice of other creditors hold-
ing unsecured claims, of any amount by which the
debt secured by such security interest exceeded the
value of all security interests for such debt on the
later of—
(A)(i) with respect to a transfer to which
subsection (b)(1) applies, 120 days before the
date of the filing of the petition; or
(ii) with respect to a transfer to which sub-
section (b)(2) or (b)(3) applies, 1 year before
the date of the filing of the petition; or
(B) the date on which new value was first
given under the security agreement creating
such security interest.
313
(d) VOIDABLE LIEN DISSOLVED
BY FURNISHING
BOND.—If a lien which is voidable under this section has
been dissolved by the furnishing of a bond or other obliga-
tion, the surety on which has been indemnified directly
or indirectly by the transfer or the creation of a lien upon
the national insurer’s property before the filing of a suc-
cessful petition for rehabilitation or liquidation, then that
indemnifying transfer or lien shall also be considered void-
able.
(e) LIABILITY OF SURETY.—The liability of the sur-
ety under a releasing bond or other like obligation shall
be discharged to the extent of the value of the indem-
nifying property recovered or the indemnifying lien to the
extent of the amount paid to the liquidator.
(f) OTHER
RULES.—For the purposes of this
section—
(1) a transfer of property other than real prop-
erty shall be deemed to be made or suffered when
it becomes so far perfected that no subsequent lien
obtainable by legal or equitable proceedings on a
simple contract could become superior to the rights
of the transferee;
(2) a transfer of real property shall be deemed
to be made or suffered when it becomes so far per-
fected that no subsequent bona fide purchaser from
316
curred, or became insolvent as a result of such
transfer or obligation;
(ii) was engaged in business or a trans-
action, or was about to engage in business or
a transaction, for which any property remaining
with the insurer was an unreasonably small
capital; or
(iii) intended to incur, or believed that it
would incur, debts that would be beyond its
ability to pay as such debts matured.
(b) PERMITTED LIENS.—Except to the extent that
a transfer or obligation voidable under this section is void-
able under section 951 or 952, a transferee or obligee of
such a transfer or obligation that takes for value and in
good faith has a lien on or may retain any interest trans-
ferred or may enforce any obligation incurred, as the case
may be, to the extent that such transferee or obligee gave
value to the national insurer in exchange for such transfer
or obligation. a transfer is made when such transfer is
so perfected that a bona fide purchaser from the national
insurer against whom applicable law permits such transfer
to be perfected cannot acquire an interest in the property
transferred that is superior to the interest in such prop-
erty of the transferee, but if such transfer is not so per-
fected before the commencement of the receivership pro-
317
ceeding, such transfer is made immediately before the date
of the filing of the petition.
(c) VALUE DEFINED.—For purposes of this section,
the term ‘‘value’’ means property, or satisfaction or secur-
ing of a present or antecedent debt of the national insurer.
(d) REINSURANCE
SUBJECT
TO
AVOIDANCE.—A
transaction with a reinsurer of the national insurer is sub-
ject to avoidance under this section if—
(1) the transaction released the reinsurer, in
whole or in part, from its obligation to pay to the
national insurer the reinsurer’s originally specified
share of those losses which had occurred prior to the
time of the transaction but which had not been paid
by the national insurer unless the reinsurer gives a
present fair equivalent value for the release; and
(2) any part of the transaction was effected
within 1 year prior to the filing of the petition under
this title.
(e) AVOIDED REINSURANCE.—In the event a reinsur-
ance transaction is avoided under subsection (d)—
(1) the receiver shall tender to the reinsurer the
value of any consideration transferred to the na-
tional insurer in connection with such transaction
less the amount of matured and liquidated liabilities
owing by the reinsurer to the estate; and
318
(2) the parties shall be returned to their rel-
ative positions prior to the implementation of the
transaction avoided.
SEC. 954. TRANSFER OF NATIONAL INSURER’S PROPERTY
TO GOOD FAITH PURCHASER.
(a) IN GENERAL.—After a petition for receivership
has been filed, a transfer of the national insurer’s real
property made to a person acting in good faith shall be
valid against the receiver if made for a present fair equiva-
lent value, or if not made for a present fair equivalent
value, then to the extent of the present consideration actu-
ally paid for the property for which amount the transferee
shall have a lien on the transferred property. Constructive
notice of the commencement of a receivership proceeding
shall be given upon the recording of a copy of the petition
initiating a receivership proceeding with the register of
deeds in the county where any real property in question
is located. The exercise by a court of the United States
or any State of jurisdiction to authorize or effect a judicial
sale of real property of the insurer within any county in
any State shall not be impaired by the pendency of such
a proceeding unless the copy is recorded in the county
prior to the consummation of the judicial sale.
(b) OTHER RULES.—After a petition for receivership
has been filed and before either the receiver takes posses-
319
sion of the national insurer’s property or an order of re-
ceivership is granted—
(1) a transfer of the national insurer’s property,
other than real property, made to a person acting in
good faith shall be valid against the receiver if made
for a present fair equivalent value, or if not made
for a present fair equivalent value, then to the ex-
tent of the present consideration actually paid for
the property for which amount the transferee shall
have a lien on the transferred property;
(2) a person indebted to the national insurer or
holding property of the national insurer, if acting in
good faith, may pay all or part of the indebtedness
or deliver all or part of the property to the national
insurer or upon his or her order, with the same ef-
fect as if the petition were not pending;
(3) a person having actual knowledge of the
pending receivership shall be considered not to act in
good faith; and
(4) a person asserting the validity of a transfer
under this section shall have the burden of proof.
Except as elsewhere provided in this section, no
transfer by or on behalf of the national insurer after
the date of the petition for receivership proceeding
320
by a person other than the receiver shall be valid
against the receiver.
(c) CURRENCY
OR NEGOTIABLE INSTRUMENTS.—
Nothing in this title shall impair the negotiability of cur-
rency or negotiable instruments.
SEC. 955. RECOUPMENT FROM AFFILIATES.
If an order of liquidation or rehabilitation is entered
under this title, the receiver shall have a right to recover
from any affiliate that controlled the national insurer the
amount of distributions, other than shareholder dividends
paid by the national insurer on its capital stock, made at
any time during the 5 years preceding the petition for liq-
uidation or rehabilitation subject to the following limita-
tions:
(1) A distribution shall not be recoverable
under this section if the recipient or other bene-
ficiary of distribution shows that when paid the dis-
tribution was lawful and reasonable, and that the
national insurer did not know and could not reason-
ably have known that the distribution would ad-
versely affect the ability of the national insurer to
fulfill its contractual obligations.
(2) A person who was an affiliate that con-
trolled the national insurer at the time the distribu-
tions were paid shall be liable up to the amount of
321
distributions he or she received, and a person who
was an affiliate that controlled the national insurer
at the time the distributions were declared shall be
liable up to the amount of distributions he or she
would have received if they had been paid imme-
diately; Provided, That—
(A) if two or more persons are liable with
respect to the same distributions, they shall be
jointly and severally liable; and
(B) if a person liable under this subdivi-
sion is insolvent, all controlling affiliates at the
time the distribution was paid shall be jointly
and severally liable for any resulting deficiency
in the amount recovered from the insolvent af-
filiate.
(3) The maximum amount recoverable under
this subsection shall be the amount needed in excess
of all other available assets of the national insurer
to pay its contractual obligations.
SEC. 956. LIABILITY OF TRANSFEREE OF AN AVOIDED
TRANSFER.
(a) IN GENERAL.—Except as otherwise provided in
this section, to the extent that a transfer is avoided under
section 951, 952, 953, or 955, the receiver may recover,
322
for the benefit of the estate, the property transferred, or
if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the
entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of
such initial transferee.
(b) PARTICIPATION BY OFFICER, DIRECTOR OR CON-
TROL PERSON.—An officer, director or other person in
control of the national insurer who knowingly participates
in making a transfer voidable under section 951, 952, 953,
or 955, if such person knew or should have known the
national insurer was or was about to become insolvent at
the time of the transfer, shall be personally liable to the
receiver for the amount of the transfer. If the transfer
was made within 120 days before the date of filing of a
successful petition under this title then it shall be pre-
sumed that such person knew or should have known the
insurer was or was about to become insolvent.
(c) EXCEPTIONS.—The receiver may not recover
under subsection (a)(2) from—
(1) a transferee who or that takes for value, in-
cluding satisfaction or securing of a present or ante-
cedent debt, in good faith, and without knowledge of
the voidability of the transfer avoided; or
323
(2) any immediate or mediate good faith trans-
feree of such transferee.
(d) OTHER EXCEPTIONS.—A transfer that is voidable
only under subsection (b)(3) of section 952 may not be
recovered under this section from a transferee that is
not—
(1) an officer or director of the national in-
surer;
(2) an employee, attorney or other person who
was, in fact, in a position to effect a level of control
or influence over the actions of the national insurer
comparable to that of an officer, whether or not the
person held such a position; or
(3) any shareholder owning or controlling di-
rectly or indirectly more than 10 percent of any
class of any equity security issued by the national
insurer, or any other person, firm, corporation, asso-
ciation, or aggregation of persons with whom the na-
tional insurer did not deal at arm’s length.
(e) VALUE OF LIEN.—
(1) A good faith transferee from whom the re-
ceiver may recover under subsection (a) has a lien
on the property received to secure the lesser of—
(A) the cost, to such transferee, of any im-
provement made after the transfer, less the
324
amount of any profit realized by or accruing to
such transferee from such property; and
(B) any increase in the value of such prop-
erty as a result of such improvement, of the
property transferred.
(2) For purposes of this subsection, the term
‘‘improvement’’ includes—
(A) physical additions or changes to the
property transferred;
(B) repairs to such property;
(C) payment of any tax on such property;
(D) payment of any debt secured by a lien
on such property that is superior or equal to
the rights of the receiver; and
(E) preservation of such property.
(f) TIMING OF ACTION.—An action or proceeding
under this section may not be commenced after the earlier
of—
(1) 1 year after the avoidance of the transfer
on account of which recovery under this section is
sought; or
(2) the time the receivership proceeding is
closed or dismissed.
325
SEC. 957. AUTOMATIC PRESERVATION OF AVOIDED TRANS-
FER.
Any transfer avoided under section 951, 952, 953,
955, or section 956 is preserved for the benefit of the re-
ceivership but only with respect to property of the national
insurer.
SEC. 958. SETOFF.
(a) SETOFF PERMITTED.—Mutual debts or mutual
credits whether arising out of one or more contracts be-
tween a national insurer that is subject to a receivership
proceeding under this title and another person shall be set
off and the balance only shall be allowed or paid except
as provided in subsection (b) of this section and in section
949 and subsection (b)(4) of section 962. Obligations aris-
ing out of the termination of reinsurance contracts pursu-
ant to section 962 may be set off against other debts and
credits arising out of contracts between the national in-
surer and the reinsurer.
(b) EXCEPTIONS.—No setoff shall be allowed in favor
of any person when—
(1) the obligation of the national insurer to the
person would not at the date of the filing of a peti-
tion for receivership entitle the person to share as a
claimant in the assets of the national insurer;
326
(2) the obligation of the national insurer to the
person was purchased by or transferred to the per-
son with a view to its being used as a setoff;
(3) the obligation of the national insurer is
owed to an affiliate of such person or any other enti-
ty or association other than the person;
(4) the obligation of the person is owed to an
affiliate of the national insurer or any other entity
or association other than the national insurer;
(5) the obligation of the person is to pay an as-
sessment levied against the members or subscribers
of the national insurer, is to pay a balance upon a
subscription to the capital stock of the national in-
surer, or is in any other way in the nature of a cap-
ital contribution; or
(6) the obligations between the person and the
national insurer arise out of transactions by which
either the person or the national insurer has as-
sumed risks and obligations from the other party
and then has ceded back to that party substantially
the same risks and obligations.
Notwithstanding the provisions of this subsection, the re-
ceiver may permit setoffs if in his or her discretion a setoff
is appropriate because of specific circumstances relating
to a transaction.
327
SEC. 959. QUALIFIED FINANCIAL CONTRACTS.
(a) NO STAY.—Notwithstanding any other provision
of this title, including any other provision of this title per-
mitting the modification of contracts, or other law of a
State, no person shall be stayed or prohibited from
exercising—
(1) any contractual right to terminate, liquidate
or close out any netting agreement or qualified fi-
nancial contract with a national insurer because of—
(A) the insolvency, financial condition or
default of the national insurer at any time, pro-
vided that such right is enforceable under appli-
cable law other than this title; or
(B) the commencement of a receivership
proceeding under this title;
(2) any right under a pledge, security, collateral
or guarantee agreement or any other similar security
arrangement or credit support document relating to
a netting agreement or qualified financial contract;
or
(3) subject to any provision of section 958, any
right to set off or net out any termination value,
payment amount, or other transfer obligation arising
under or in connection with a netting agreement or
qualified financial contract where the counterparty
or its guarantor is organized under the laws of the
328
United States or a State or foreign jurisdiction ap-
proved by the Director as eligible for netting.
(b) SETTLEMENT
ON TERMINATION
OF NETTING
AGREEMENT.—Upon termination of a netting agreement,
the net or settlement amount, if any, owed by a non-de-
faulting party to a national insurer against which an appli-
cation or petition has been filed under this title shall be
transferred to or on the order of the receiver for such na-
tional insurer, even if the national insurer is the defaulting
party, notwithstanding any provision in the netting agree-
ment that may provide that the non-defaulting party is
not required to pay any net or settlement amount due to
the defaulting party upon termination. Any limited two-
way payment provision in a netting agreement with a na-
tional insurer that has defaulted shall be deemed to be
a full two-way payment provision as against the defaulting
national insurer. Any such property or amount shall, ex-
cept to the extent it is subject to one or more secondary
liens or encumbrances, be a general asset of the national
insurer.
(c) TRANSFER NETTING AGREEMENT OR QUALIFIED
FINANCIAL CONTRACT.—In making any transfer of a net-
ting agreement or qualified financial contract of a national
insurer concerning which a receivership proceeding is
pending under this title, the receiver shall either—
329
(1) transfer to one party (other than a national
insurer subject to a proceeding under this title) all
netting agreements and qualified financial contracts
between a counterparty or any affiliate of such
counterparty and the insurer that is the subject of
the proceeding, including—
(A) all rights and obligations of each party
under each such netting agreement and quali-
fied financial contract; and
(B) all property, including any guarantees
or credit support documents, securing any
claims of each party under each such netting
agreement and qualified financial contract; or
(2) transfer none of the netting agreements,
qualified financial contracts, rights, obligations or
property referred to in paragraph (1) (with respect
to such counterparty and any affiliate of such
counterparty).
(d) TRANSFER; NOTICE.—
(1) If a receiver for a national insurer makes
any transfer of one or more netting agreements,
then the receiver shall use its best efforts to notify
any person who is party to the netting agreements
of the transfer by 12:00 noon (the receiver’s local
time) on the business day following the transfer.
330
(2) For purposes of this subsection, the term
‘‘business day’’ means any day other than a Satur-
day, Sunday, or any day on which either the New
York Stock Exchange or the Federal Reserve Bank
of New York is closed.
(e) 
PRERECEIVERSHIP
TRANSFERS.—Notwith-
standing any other provision of this title, a receiver may
not avoid any transfer of money or other property arising
under or in connection with a netting agreement (or any
pledge, security, collateral or guarantee agreement or any
other similar security arrangement or credit support docu-
ment relating to a netting agreement) that is made before
the commencement of a receivership proceeding under this
title. However, a transfer may be avoided under section
953 if the transfer was made with actual intent to hinder,
delay or defraud the national insurer, a receiver appointed
for the insurer or existing or future creditors.
(f) NETTING AGREEMENT TO BE TAKEN
AS
A
WHOLE.—
(1) In exercising any of its powers under this
title to reject or repudiate a netting agreement, the
receiver must take such action with respect to each
netting agreement and all transactions entered into
in connection therewith, in its entirety. Notwith-
standing any other provision of this title, any claim
331
of a counterparty against the estate arising from the
receiver’s rejection or repudiation of a netting agree-
ment that has not been previously assumed by the
receiver shall be determined and shall be allowed or
disallowed as if such claim had arisen before the
date of the filing of the petition under this title, pro-
vided that no such claim shall be allowed to have a
priority greater than the claim of a general creditor.
The amount of the claim shall be the contractual di-
rect compensatory damages determined as of the
date of the rejection or repudiation of the netting
agreement.
(2) For purposes of this subsection, the term
‘‘contractual direct compensatory damages’’ does not
include punitive or exemplary damages, damages for
lost profit or lost opportunity or damages for pain
and suffering, but does include normal and reason-
able costs of cover or other reasonable measures of
damages utilized in the derivatives market for the
contract and agreement claims.
(g) CONTRACTUAL RIGHT DEFINED.—For purposes
of this section, the term ‘‘contractual right’’ includes any
right, whether or not evidenced in writing, arising under
statutory or common law, a rule or bylaw of a national
securities exchange, national securities clearing organiza-
332
tion or securities clearing agency, a rule or bylaw, or a
resolution of the governing body, of a contract market or
its clearing organization, or under law merchant.
(h) NO APPLICATION TO AFFILIATES.—This section
shall not apply to persons who are affiliates of the national
insurer that is the subject of the receivership proceeding.
(i) APPLICATION TO THE GENERAL ACCOUNT, SEPA-
RATE ACCOUNTS, AND PROTECTED CELLS.—All rights of
counterparties under this title shall apply to netting agree-
ments entered into on behalf of—
(1) the general account;
(2) separate accounts if the assets of each sepa-
rate account are available only to counterparties to
netting agreements entered into on behalf of that
separate account; or
(3) protected cells if the assets of each pro-
tected cell are available only to counterparties to
netting agreements entered into on behalf of that
protected cell.
SEC. 960. RECOVERY FROM REINSURERS.
Except as provided in section 961, the amount recov-
erable by the receiver from reinsurers shall not be reduced
as a result of the filing of a proceeding under this title,
regardless of any provision in the reinsurance contract or
other agreement.
333
SEC. 961. CUT-THROUGH PROVISIONS.
If a reinsurance contract or other written agreement
is entered into prior to the receivership proceeding and
is not otherwise prohibited by law and expressly provides
for another payee of such reinsurance in the event of the
insolvency of the ceding national insurer, any payment
made or due to such third party under such contract or
other written agreement shall be a reduction to the
amount due the receiver. Except as provided in this sec-
tion, payment made directly to an insured or other payee
shall not diminish the reinsurer’s obligation to the national
insurer’s estate.
SEC. 962. LIFE REINSURANCE.
(a) CONTINUATION
OF REINSURANCE CONTRACTS
PRIOR TO LIQUIDATION.—Contracts reinsuring policies of
insurance issued by a company that has not been placed
in liquidation pursuant to this Act shall be continued or
terminated pursuant to the terms and conditions of each
reinsurance contract.
(b) CONTINUATION
OF REINSURANCE CONTRACTS
REINSURING COVERED POLICIES.—Reinsurance contracts
on policies of insurance that are covered policies (as such
term is defined in section 1001) that have been ceded by
an insolvent insurer (as such term is defined in section
1001) subject to this title shall be assumed by affected
guaranty associations unless the receiver shall have termi-
335
that occur in periods after the coverage date and
that relate to policies of insurance covered (in whole
or in part) under subtitle A of title X, provided that,
upon receipt of any such amounts, the guaranty as-
sociation shall be obliged to pay to the beneficiary
under the insurance policy on account of which the
amounts were paid a portion of the amount equal to
the excess of (A) the amount received by the guar-
anty association, over (B) the benefits paid by the
guaranty association on account of the insurance
policy less the retention of the impaired or insolvent
member insurer (as such terms are defined in para-
graphs (11) and (12) of section 1001) applicable to
the loss or event.
(3) Within 30 days following the coverage date,
the guaranty association and each reinsurer under
reinsurance contracts assumed by the guaranty asso-
ciation (in this section referred to as the ‘‘indemnity
reinsurer’’) shall calculate the net balance due to or
from the guaranty association under each such rein-
surance contract as of the coverage date, which cal-
culation shall give full credit to all items paid by ei-
ther the company or its receiver) or the indemnity
reinsurer prior to the coverage date. Either the
guaranty association or indemnity reinsurer shall
336
pay the net balance due the other within 5 days of
the completion of the aforementioned calculation. If
the receiver has received any amounts due the guar-
anty association pursuant to paragraph (2), the re-
ceiver shall remit the same to the guaranty associa-
tion as promptly as practicable.
(4) If the guaranty association, within 60 days
of the coverage date, pays the premiums due for pe-
riods both before and after the coverage date that
relate to policies of insurance covered by the guar-
anty association (in whole or in part), the reinsurer
shall not be entitled to terminate the reinsurance
contracts for failure to pay premium (insofar as the
reinsurance contracts relate to policies of insurance
covered by the guaranty association (in whole or in
part)) and shall not be entitled to set off any unpaid
premium due for periods prior to the coverage date
against amounts due the guaranty association.
(c) CONTINUATION
OF REINSURANCE CONTRACTS
REINSURING POLICIES
OF INSURANCE NOT COVERED
UNDER SUBTITLE A OF TITLE X SUBSEQUENT TO AN
ORDER OF LIQUIDATION.—When, pursuant to court ap-
proval under subsection (c) of section 931, or pursuant
to a plan approved by the court under section 979, a re-
ceiver continues policies of insurance in force following an
337
order of liquidation, and such policies of insurance are not
covered in whole or in part under subtitle A of title X,
the reinsurance on such policies of insurance shall also be
continued in force by the receiver pursuant to the terms
and conditions of the reinsurance contract, subject only
to the receiver’s right to terminate pursuant to subsection
(f) of this section. Payment of premiums on such contracts
shall be chargeable against the estate as a Class 1 admin-
istrative expense under subsection (b) of section 975.
Amounts paid by the reinsurer on account of losses on
the policies of insurance shall be to the estate of the insol-
vent insurer unless the court shall, in the interest of eq-
uity, order otherwise. Reinsurance contracts covering poli-
cies of insurance that are not continued or transferred
pursuant to this section shall terminate pursuant to sub-
section (f) of this section.
(d) TRANSFER
OF REINSURANCE CONTRACTS.—
When policies of insurance, or other obligations covered
by subtitle A of title X, are transferred to an assuming
insurer, and other policy obligations are transferred by the
receiver to an assuming insurer, reinsurance on such poli-
cies of insurance may also be transferred by the guaranty
association or the receiver, subject to the following:
(1) Unless the reinsurer and assuming insurer
agree otherwise, the reinsurance contract transferred
338
shall not cover any new policies of insurance in addi-
tion to those transferred.
(2) The obligation described in subsection
(b)(2) shall no longer apply.
(3) Notice shall be given in writing by the
transferring party to the affected reinsurer not less
than 30 days prior to the effective date of the trans-
fer.
(e) SUPERSEDE STATE LAW.—The provisions of this
section shall supersede the provisions of any law of any
State or of any affected reinsurance contracts that provide
for or require any payment of reinsurance proceeds, on
account of losses or events that occur in periods after the
coverage date, to the receiver of the insolvent insurer. The
receiver or guaranty association, as the case may be, 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 coverage date
(subject to the provisions of this Act, including applicable
setoff provisions).
(f) TERMINATION OF REINSURANCE CONTRACTS.—
At any time within one year after the date of entry of
the order of liquidation, the guaranty association may
elect to terminate those reinsurance contracts covering ob-
ligations of the national insurer that relate to policies of
339
insurance protected (in whole or in part) under subtitle
A of title X, and the receiver may elect to terminate those
reinsurance contracts covering obligations of the national
insurer that relate to policies of insurance not protected
under subtitle A of title X. The election shall be effected
by a written notice to any affected reinsurer. Whenever
such an election is made, or whenever this Act otherwise
requires a reinsurance contract to be terminated, the fol-
lowing procedures shall apply:
(1) Either the reinsurer or whichever of the re-
ceiver or guaranty association that has the right to
make such election to terminate shall, upon written
notice to the other party to the reinsurance contract
no later than 30 days after the receipt by the rein-
surer of notice of termination, commence a manda-
tory negotiation and arbitration procedure in accord-
ance with this subsection.
(2) Each party shall appoint an actuary to de-
termine an estimated sum due as a result of the ter-
mination of the reinsurance contract calculated in a
way expected to make the parties economically indif-
ferent as to whether the reinsurance contract con-
tinues or terminates. The Director shall develop
guidelines for calculating the estimated sum and in
connection therewith shall consult the American
340
Academy of Actuaries. Such guidelines shall take
into account the present value of future cash flows
expected under the reinsurance contract and be
based on a gross premium valuation of net liability
using current assumptions that reflect post-insol-
vency experience expectations (without provision for
adverse deviation), net of any amounts payable and
receivable, and with a market value adjustment to
reflect premature sale of assets to fund the settle-
ment.
(3) Within 90 days of the written notice pursu-
ant to paragraph (1), each party shall provide the
other party with its estimate of the sum due as a
result of the termination of the reinsurance contract,
together with all relevant documents and other infor-
mation supporting the estimate. The parties shall
make a good faith effort to reach agreement on the
sum due.
(4) If the parties are unable to reach agreement
within 90 days following the submission of materials
required in paragraph (3), either party may initiate
arbitration proceedings as provided in the reinsur-
ance contract. In the event that the reinsurance con-
tract does not contain an arbitration clause, either
party may initiate arbitration pursuant to this para-
341
graph by providing the other party with a written
demand for arbitration. The arbitration shall be con-
ducted pursuant to the procedures contained in the
following subparagraphs (A) through (E):
(A) Venue for the arbitration shall be with-
in the district of the court’s jurisdiction or such
other location as may be agreed to by the par-
ties.
(B) Within 30 days of the responding par-
ty’s receipt of the arbitration demand, each
party shall appoint an arbitrator who is a disin-
terested active or former officer or executive of
a life insurance or reinsurance company, or
other professional with no less than 10 years
experience in or serving the life insurance or re-
insurance industry. The two arbitrators shall
appoint an independent, impartial, disinterested
umpire who is an active or former officer or ex-
ecutive of a life insurance or reinsurance com-
pany. If the arbitrators are unable to agree on
an umpire, each arbitrator shall provide the
other with the names of three qualified individ-
uals, each arbitrator shall strike two names
from the other’s list and the umpire shall be
342
chosen by drawing lots from the remaining indi-
viduals.
(C) Within 60 days following the appoint-
ment of the umpire, the parties shall, unless
otherwise ordered by the panel, submit to the
arbitration panel their estimates of the sum due
as a result of the termination of the reinsurance
contract, together with all relevant documents
and other information supporting the estimate.
(D) The time periods set forth in this
paragraph may be extended upon mutual agree-
ment of the parties.
(E) The panel shall have all powers nec-
essary to conduct the arbitration proceedings in
a fair and appropriate manner, including the
power to request additional information from
the parties, authorize discovery, hold hearings
and hear testimony. The panel also may, if it
deems necessary, appoint independent actuarial
experts, the expense of which shall be shared
equally between the parties.
(F) Any arbitration panel considering the
matters set forth in this section shall issue a
written award specifying a net settlement
amount due from one party or the other as a
343
result of the termination of the reinsurance con-
tract. The court shall confirm that award ab-
sent proof of statutory grounds for vacating or
modifying arbitration awards under the Federal
Arbitration Act.
(G) If the net settlement amount agreed or
awarded pursuant to this section is payable by
the reinsurer, the reinsurer shall pay the
amount due to either the estate or to the guar-
anty association, whichever is entitled thereto,
subject to any applicable set-off under section
958. If the net settlement amount agreed or
awarded pursuant to this section is payable by
the national insurer, the reinsurer shall be enti-
tled to file a claim against the estate for that
amount, which claim shall be paid pursuant to
the priorities established in section 974. If the
net settlement amount is due the reinsurer on
reinsurance contracts for which the guaranty
association had been paying premiums and col-
lecting recoveries from the reinsurer, it shall be
paid to the reinsurer by the guaranty associa-
tion.
(g) REINSURANCE CONTRACTS NOT ALTERED OR
MODIFIED.—Except as otherwise expressly provided in
344
this section, nothing herein shall alter or modify the terms
and conditions of any reinsurance contract. Nothing here-
in shall abrogate or limit any rights of any reinsurer to
claim that it is entitled to rescind a reinsurance contract.
Nothing herein shall give a policyholder or beneficiary an
independent cause of action against an indemnity rein-
surer that is not otherwise set forth in the reinsurance
contract.
Subtitle G—Creditors and Claims
SEC. 963. RIGHTS AND LIABILITIES OF CREDITORS FIXED
UPON LIQUIDATION.
The rights and liabilities of the national insurer and
of its creditors, policyholders, shareholders, or members
and all other persons interested in its assets, shall be fixed
as of the date of the entry of the order of liquidation un-
less otherwise provided in this Act or by order of the court.
SEC. 964. CLAIMS FILING; LATE FILING.
(a) FILING PROOFS OF CLAIMS.—To the extent re-
quired, proof of all claims shall be filed with the receiver
in the form required by section 965 on or before the last
day established by the court, which date shall not be later
than 18 months after entry of the order of liquidation un-
less the court, for good cause shown, extends such time,
and except that proofs of claim for cash surrender values
or other investment values in life, disability income or
345
long-term care insurance or annuities need not be filed
unless the receiver expressly so requires.
(b) LIST OF PERSONS WHO HAVE NOT FILED.—
Upon the rehabilitation or liquidation of any national in-
surer which has issued insurance policies insuring the lives
of persons, the Director shall, within a reasonable time
after the last day set for the filing of claims, make a list
of the persons who have not filed proofs of claim and
whose rights have not been reinsured, to whom it appears
from the books of the national insurer, there are amounts
owing on such insurance policies and the Director shall
set opposite the name of each person such amount so
owing to such person. The Director shall incur no personal
liability by reason of any mistake in such list. Each person
whose name shall appear upon said list shall be deemed
to have duly filed prior to the last day set for filing of
claims a proof of claim for the amount set opposite his
or her name on said list.
(c) LATE FILING.—The receiver shall permit a claim-
ant making a late filing to share in distributions, including
a ratable share of distributions previously made, whether
past or future, as if the claim were not late-filed, to the
extent that the payment will not prejudice the orderly ad-
ministration of the receivership, under the following cir-
cumstances:
346
(1) The existence of the claim was not known
to the claimant and the claimant filed the claim as
promptly as reasonably possible after learning of it.
(2) The claim is filed pursuant to subsection
(b) of section 974.
(3) The valuation under section 968 of security
held by a secured creditor shows a deficiency, and
the claim is filed within 30 days after the valuation.
(d) LATE CLAIMS BY GUARANTY ASSOCIATIONS AND
BY REINSURERS.—The receiver shall permit guaranty as-
sociations, and those reinsurers whose reinsurance con-
tracts are terminated pursuant to section 962, to file
claims late and to receive a ratable share of distributions
previously made as if such claims were not late.
(e) OTHER LATE CLAIMS.—Notwithstanding the
foregoing, the receiver may consider and allow a late-filed
claim which is not covered by subsection (c) of this section
and permit it to receive distributions as if it had not been
filed late, to the extent such treatment will not prejudice
the orderly administration of the receivership. The late-
filing claimant shall receive distributions in the same per-
centage as other claimants in class 6, pursuant to sub-
section (g) of section 975.
347
SEC. 965. PROOF OF CLAIM.
(a) CONTENT OF PROOF OF CLAIM.—A proof of
claim shall consist of a statement signed by or on behalf
of the claimant that includes all of the following that are
applicable—
(1) the particulars of the claim, including any
consideration given for it;
(2) the identity and amount of any security for
the claim;
(3) the payments made on the debt, if any;
(4) that the sum claimed is justly owing and
that there is no set off, counterclaim, or defense to
the claim;
(5) any right of priority of payment or other
specific right asserted by the claimants;
(6) the name and address of the claimant and
the attorney who represents him or her, if any; and
(7) the claimant’s social security or Federal em-
ployer identification number.
(b) FORM PERMITTED.—The receiver may require
that a prescribed form be used and may require that other
information and documents be included.
(c) SUPPLEMENTARY INFORMATION OR EVIDENCE.—
The receiver may request the claimant to present informa-
tion or evidence supplementary to that required under
subsection (a) at any time and may take testimony under
348
oath, require production of affidavits or depositions, or
otherwise obtain additional information or evidence.
(d) SINGLE OMNIBUS PROOF OF CLAIM BY GUAR-
ANTY ASSOCIATION.—Any guaranty association shall be
permitted to file a single omnibus proof of claim for all
claims of the guaranty association in connection with the
payment of claims of the insolvent national insurer. The
omnibus proof of claim may be periodically updated by the
guaranty association and the guaranty association may be
required to submit a reasonable amount of documentation
in support of the claim.
SEC. 966. ALLOWANCE OF CLAIMS.
(a) CLAIMS REVIEW.—The receiver shall review all
claims duly filed in the receivership proceeding and shall
further investigate as he or she considers necessary. Con-
sistent with the provisions of this title, the receiver may
compound, compromise or in any other manner negotiate
the amount for which claims will be recommended to the
court unless the receiver is required by law to accept
claims as settled by a person or organization, including
a guaranty association, subject to any statutory or con-
tractual rights of the affected reinsurers to participate in
the claims allowance process.
(b) CONTINGENT OR UNLIQUIDATED CLAIMS.—Ex-
cept as provided in section 967, a contingent or unliqui-
349
dated claim may not be allowed unless such claim becomes
absolute on or before the date established by the court.
(c) 
UNMATURED
CLAIMS.—A 
claim 
that 
is
unmatured as of the date established by the court may
be allowed as if it were mature, except it shall be dis-
counted at the higher of the legal rate of interest accruing
on judgments or the rate of interest available on United
States Treasury securities of approximately the same ma-
turity.
(d) JUDGMENT OR ORDER AGAINST AN INSURED OR
NATIONAL INSURER.—A judgment or order against an in-
sured or the national insurer entered after the date of the
filing of a successful petition for rehabilitation or liquida-
tion and a judgment or order against an insured or the
national insurer entered at any time by default or by collu-
sion need not be considered as evidence of liability or of
the quantum of damages. A judgment or order against an
insured or the national insurer entered within 120 days
before the filing of the petition need not be considered as
evidence of liability or of the quantum of damages.
(e) 
EMPLOYMENT
CONTRACT
CLAIMS.—Claims
under employment contracts by directors, principal offi-
cers or persons in fact performing similar functions or
having similar powers are limited to payment for services
rendered prior to any order of rehabilitation or liquidation.
350
(f) CLAIMS ARISING FROM TRANSFERRED POLI-
CIES.—No claim based on breach of any policy of insur-
ance shall be allowed against a reinsurer where such policy
has been transferred to a new assuming insurer.
(g) TOTAL LIABILITY.—The total liability of the na-
tional insurer to all claimants arising out of the same act
or policy shall be no greater than its total liability would
be were the national insurer not in rehabilitation or liq-
uidation.
(h) SMALL CLAIMS DISALLOWED.—Claims equal to
or less than $50 shall be disallowed.
SEC. 967. ALLOWANCE OF CONTINGENT AND UNLIQUI-
DATED CLAIMS.
(a) IN GENERAL.—A reported claim of an insured or
third party may be allowed, regardless of the fact that it
was contingent or unliquidated as of the date established
under section 964, if any contingency is removed in ac-
cordance with subsection (b) of this section and the value
of the claim is determined in accordance with subsection
(c) of this section.
(b) CONTINGENT CLAIM.—A contingent claim may be
allowed—
(1) if the claimant has presented proof of the
insurer’s obligation to pay reasonably satisfactory to
the receiver; or
351
(2)(A) the claim was based upon a cause of ac-
tion against an insured of the national insurer;
(B) it may be reasonably inferred from proof
presented upon the claim that the claimant would be
able to obtain a judgment; and
(C) the person has furnished suitable proof, un-
less the court for good cause shown shall otherwise
direct, that no further valid claims can be made
against the national insurer arising out of the cause
of action other than those already presented.
(c) UNLIQUIDATED CLAIM.—
(1) An unliquidated claim may be allowed if—
(A) its amount has been determined; or
(B) its amount remains undetermined, the
valuation of the unliquidated claim may be
made by estimate whenever the receiver deter-
mines that either liquidation of the claim would
unduly delay the administration of the receiver-
ship proceeding or that the administrative ex-
pense of processing and adjudicating the claim
or group of claims of a similar type would be
unduly excessive when compared with the assets
that are estimated to be available for distribu-
tion with respect to the claim.
352
(2) Any estimate shall be based on an accepted
method of valuing claims with reasonable certainty,
such as actuarial evaluation.
SEC. 968. RESERVE FOR THIRD PARTY CLAIMS AGAINST IN-
SURED.
(a) THIRD PARTY FILERS.—If a third party asserts
a cause of action against an insured, the third party may
file a claim, which claim may be allowed as provided in
section 966.
(b) FILING BY INSURED.—Whether or not the third
party files a claim, the insured may file a claim on his
or her behalf. The receiver, in his or her discretion, may
elect to evaluate such claim under section 967(c) or sub-
section (c) of this section.
(c) ELIMINATION OF CLAIM.—The receiver may esti-
mate the amount of an insured’s reported claim after con-
sideration of the probably outcome of any pending action
against the insured on which the claim is based, the prob-
able damages recoverable in the action and the probable
costs and expenses of defense. Upon the receiver’s petition
and after approval by the court, the receiver shall set aside
funds equal to the dividend which would be payable on
the claim as estimated, pending the outcome of litigation
and negotiation between the insured and the third party.
The receiver may reconsider the amount withheld under
353
this subsection on the basis of additional information and
petition the court as he or she deems appropriate. After
notice and a hearing, the court may amend its allowance
as appropriate. As claims against the insured are settled
or barred, the claim of the insured shall be allowed and
there shall be paid from the amount reserved the same
percentage dividend as was paid on other claims of the
same priority, based on the lesser of—
(1) the amount actually due from the insured
on the basis of a judgment or by agreement with the
third party, plus the reasonable costs and expense of
defense; or
(2) the amount of the estimate approved by the
court and for which provision was made in accord-
ance with this subsection.
After all claims are settled or barred, any sum remaining
from the amount withheld shall revert to the undistributed
assets of the national insurer.
(d) MULTIPLE CLAIMS.—If several claims founded
upon one policy are filed, whether by third parties or as
claims by the insured under this section, and the aggre-
gate allowed of the claims exceeds the aggregate policy
limits, the policy limits shall be apportioned ratably among
the allowed claims. If any insured’s claim is subsequently
reduced under subsection (c), the amount thus freed shall
354
be apportioned ratably among the claims which have been
reduced under this subsection.
(e) EXCEPTION.—No claim may be allowed under
this section to the extent it is covered by any guaranty
association.
SEC. 969. ALLOWANCE OF SECURED CLAIMS.
(a) DETERMINATION OF VALUE OF SECURITY.—The
value of security held by a secured creditor shall be
determined—
(1) by converting the same into money accord-
ing to the terms of the agreement pursuant to which
the security was delivered to the creditors; or
(2) by agreement, arbitration, compromise, or
litigation between the creditor and the receiver.
(b) PROCEDURE.—The determination shall be under
the court’s supervision and control with due regard for the
receiver’s recommendation. The amount determined shall
be credited upon the secured claim and any deficiency
shall be treated as an unsecured claim. If the claimant
surrenders his or her security to the receiver, the entire
claim shall be allowed as if unsecured.
SEC. 970. PRELIMINARY NOTICE OF CLAIMS DETERMINA-
TION.
(a) IN GENERAL.—Except as otherwise provided in
this title, after consideration of claims in accordance with
355
sections 966, 967, 968, and 969 the receiver shall provide
notice of his or her preliminary determination and of the
right to object to the claimant or the claimant’s represent-
ative and to any reinsurer which is or would be liable to
the receiver in respect of the claim if it were allowed. No-
tice shall be sent by first class mail to the intended recipi-
ent’s last known address, according to the receiver’s
records, and shall include a description of the claim pro-
posed to be allowed or denied, the rationale for such allow-
ance or denial, and the procedures for submitting objec-
tions to the receiver.
(b) FILING OF OBJECTIONS.—Within 60 days from
the mailing of the notice, the claimant or the reinsurer
may file written objections with the receiver. Any claimant
or reinsurer who fails to object on a timely basis may not
further object to that claim determination.
(c) SUBMISSION
OF UNRESOLVED OBJECTION
TO
COURT.—Whenever an objection is filed with the receiver
and the matter is not resolved by the parties, the receiver
shall submit the claim with his or her final determination
to the court in accordance with section 973.
SEC. 971. CLAIMS OF CO-DEBTORS.
(a) IN GENERAL.—If a creditor, whose claim against
an insurer is secured in whole or in part by the under-
taking of another person, fails to prove and file that claim,
356
the other person may do so in the creditor’s name and
shall be subrogated to the rights of the creditor, whether
the claim has been filed by the creditor or by the other
person in the creditor’s name, to the extent that he or
she discharges the undertaking. In the absence of an
agreement with the creditor to the contrary, the other per-
son shall not be entitled to any distribution until the
amount paid to the creditor on the undertaking plus the
distributions paid on the claim from the insurer’s estate
to the creditor equals the amount of the entire claim of
the creditor. Any excess received by the creditor shall be
held by him or her in trust for the other person.
(b) DEFINITIONS.—For purposes of this section, the
term ‘‘other person’’ is not intended to apply to a guaranty
association.
SEC. 972. APPROVAL OF AGREED CLAIMS.
(a) IN GENERAL.—Claims with respect to which no
objection is filed on a timely basis under 970 shall be
treated as agreed claims under this section.
(b) UNRESOLVED DISPUTES.—Unresolved disputes
shall be determined in accordance with section 973 or as
otherwise provided in this Act.
(c) REPORT OF AGREED CLAIMS.—As soon as prac-
ticable, the receiver shall file with the court a report of
the agreed claims against the national insurer with his or
357
her recommendation. The report shall include the name
and address of each claimant and the amount of the claim
finally recommended, if any. If the national insurer has
issued annuities or life insurance policies, the receiver
shall report the persons, according to the records of the
national insurer, to whom amounts are owed as cash sur-
render values or other investment value and the amounts
owed.
(d) NOTICE.—Notice of the proposed allowance or
disallowance of any claim under this section shall be given
as provided at section 947.
(e) COURT ACTION.—The court may, not sooner than
14 days from the date notice was mailed pursuant to sub-
section (d), approve, disapprove or modify the receiver’s
claim report.
SEC. 973. DENIAL OF A CLAIM.
(a) NOTICE OF DENIED CLAIM.—If the receiver de-
nies a claim in whole or in part, he or she shall provide
notice of the final determination and hearing as provided
at section 947, by first class mail at the last known ad-
dress, according to the receiver’s records.
(b) HEARING.—A hearing shall be held with respect
to the claim determination, not sooner than 14 days from
the date notice was mailed pursuant to subsection (a) of
this section.
358
SEC. 974. CLAIM BY CREDITOR IN RECEIPT OF VOIDABLE
TRANSFER.
(a) IN GENERAL.—The court shall disallow the claim
of any entity from which property is recoverable under sec-
tion 956 or that is the transferee of a transfer voidable
under section 951, 952, 953, or section 955, or a similar
provision of the laws of the United States other than
under this title, unless such entity or transferee has paid
the amount, or turned over any such property, for which
such entity or transferee is liable under said sections. If
the avoidance is effected by a proceeding in which a final
judgment has been entered, the claim shall not be allowed
unless the money is paid or the property is delivered to
the receiver within 30 days from the date of the entering
of the final judgment, unless the court allows further time
for an appeal or other continuation of the proceeding.
(b) EXCUSED LATE FILING.—A claim arising by rea-
son of the recovery of property under section 949 or sec-
tion 956, whether voluntary or involuntary, may be filed
as an excused late filing under subsection (c) of section
964 if filed within 30 days from the date of the avoidance
or within the further time allowed by the court.
SEC. 975. PRIORITY OF DISTRIBUTION.
(a) IN GENERAL.—The priority of distribution from
the national insurer’s general assets shall be in accordance
with the order in which each class of claims is set forth
359
in this section. Every claim in each class shall be paid
in full or adequate funds retained for their payment before
the members of the next class receive payment. Except
as provided in subsection (b)(7) of this section, section
937, and subsection (e) of section 978, subclasses shall
not be established within a class.
(b) CLASS 1.—Class 1 claims shall be the costs and
expenses of administration, including the following:
(1) The actual and necessary costs of pre-
serving or recovering the national insurer’s assets.
(2) Reasonable compensation for all services
rendered by or to the receiver.
(3) Any necessary filing fees.
(4) The fees and mileage payable to witnesses.
(5) The reasonable expenses of a guaranty asso-
ciation, including overhead, salaries and other gen-
eral administrative expenses, allocable to such receiv-
ership, to include administrative and claims handling
expenses and expenses in connection with arrange-
ments for ongoing coverage, other than expenses in-
curred in the performance of duties relating to the
detection and prevention of insolvencies.
(6) Amounts described in the second sentence
of subsection (c) of section 962.
360
(7) Unsecured loan and other credit obligations
incurred by the receiver. Any such obligation shall
have priority over all other costs of administration.
(c) CLASS 2.—Class 2 claims shall be as follows:
(1) All claims under insurance policies, includ-
ing claims under nonassessable policies for unearned
premium; all other claims of a guaranty association
not included in Class 1 or Class 5; and in the case
of a guaranty association covering life, disability in-
come or long-term care insurance or annuities, all
claims as a creditor of the impaired or insolvent na-
tional insurer for all payments of and liabilities in-
curred on behalf of covered claims or covered obliga-
tions of the national insurer and for the funds need-
ed to reinsure those obligations with a solvent in-
surer.
(2) If it is provided by written agreement, stat-
ute or rule that the assets in a separate account are
not chargeable with the liabilities arising out of any
other business of the national insurer, that part of
a claim that includes a separate account shall be
satisfied out of the assets in the separate account
equal to the reserves maintained in the separate ac-
count under the separate account agreement. The
remainder of the claim shall be treated as a Class
361
2 claim to the extent that reserves therefore have
been established in the national insurer’s general ac-
count pursuant to statute, rule or the separate ac-
count agreement.
(3) A claim involving liabilities and other obli-
gations of a protected cell established pursuant to
section 323 shall be satisfied solely out of the assets
in the protected cell. The remainder of the claim
shall be deemed to be zero for purposes of this title.
(4) Notwithstanding the foregoing, the fol-
lowing claims shall be excluded from Class 2 pri-
ority:
(A) Obligations of the insolvent national
insurer arising out of reinsurance contracts
issued by the national insurer.
(B) Obligations incurred after the expira-
tion date of the insurance policy or after the in-
surance policy has been replaced by the insured
or canceled at the insured’s request or after the
insurance policy has been canceled as provided
in this title. Notwithstanding this subsection,
unearned premium claims on insurance policies,
other than reinsurance contracts issued by the
insurer, shall not be excluded.
362
(C) Any claim which is in excess of any ap-
plicable limits provided in the insurance policy
issued by the insolvent national insurer.
(D) Any amount accrued as punitive or ex-
emplary damages unless expressly covered
under the terms of the insurance policy.
(E) Tort claims of any kind against the
national insurer and claims against the national
insurer for bad faith or wrongful settlement
practices.
(d) CLASS 3.—Class 3 claims shall be debts due to
employees for services performed to the extent that they
do not exceed $1,000 and represent payment for services
performed within 1 year before the filing of the petition
for receivership proceeding. Officers and directors are not
entitled to the benefit of this priority. This priority is in
lieu of any other similar priority that may be authorized
by law as to wages or compensation of employees.
(e) CLASS 4.—Class 4 shall be claims of general
creditors not included in Classes 1 through 3, including
claims under reinsurance contracts issued by the insurer,
claims by reinsurers for amounts due under reinsurance
contracts terminated pursuant to subsection (f) of section
962 and claims of guaranty associations for assessments
not paid by the national insurer.
363
(f) CLASS 5.—Class 5 claims shall be claims of the
Federal Government and any State or local government
not included in Class 2. Claims, including those of the
Federal Government, or of any State or local govern-
mental body for a penalty or forfeiture, are allowed in this
class only to the extent of the pecuniary loss sustained
from the act, transaction, or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual
costs incurred. The remainder of the claims shall be post-
poned to the class of claims under subsection (i).
(g) CLASS 6.—Class 6 claims shall be late filed claims
which would otherwise be classified in Classes 2 through
5.
(h) CLASS 7.—Class 7 claims shall be surplus, capital
or contribution notes, or similar obligations, and premium
refunds on assessable policies.
(i) CLASS 8.—Class 8 claims shall be the claims of
shareholders or other owners.
SEC. 976. LIQUIDATOR’S PROPOSAL FOR EARLY ACCESS
DISBURSEMENTS.
(a) IN GENERAL.—Within 120 days of a final order
of liquidation the liquidator shall make application to the
court for approval of a proposal to make early access dis-
bursements out of marshaled assets, to any guaranty asso-
364
ciation having obligations because of the insolvency of a
national insurer.
(b) CONTENT OF PROPOSAL.—The proposal shall at
least include provisions for—
(1) reserving amounts for the payment of ex-
penses of administration and the payment of claims
of secured creditors, to the extent of the value of the
security held, and claims falling within the priorities
established in Class 1 and, to the extent not within
guaranty association coverage, Class 2 of section
975;
(2) initial disbursement of the assets marshaled
to date, which shall be as soon as practicable and in
any case not later than 120 days after approval of
the early access plan, and subsequent disbursement
of assets which shall be at least annually;
(3) equitable allocation of disbursements to
each of the guaranty associations entitled thereto;
(4) the securing by the liquidator from each of
the guaranty associations entitled to disbursements
pursuant to this section of an agreement to return
to the liquidator such assets, together with invest-
ment income actually earned on assets previously
disbursed, as may be required to pay claims of se-
cured creditors and claims falling within the prior-
365
ities established in section 975 accordance with such
priorities, and no bond shall be required of the guar-
anty association;
(5) a full report to be made by each guaranty
association to the liquidator accounting for all assets
so disbursed to the guaranty association, all dis-
bursements made therefrom, any interest earned by
the guaranty association on the assets and any other
matter as the court may direct;
(6) disbursements to guaranty associations in
sums as large as possible, subject to the limitations
set forth in subsection (b)(1); if the liquidator deter-
mines that there are insufficient assets to disburse
at the time of any required disbursement, the liqui-
dator shall make application to the court, with no-
tice to the affected guaranty associations pursuant
to subsection (b) of section 916 for approval of the
determination not to disburse, stating the reasons
therefore;
(7) the liquidator’s proposal shall provide for
disbursements to the guaranty associations in
amounts estimated at least equal to the sum of—
(A) claim payments and allocated loss ad-
justment expenses of the guaranty association;
and
366
(B) reserves as established by the guaranty
association for reported unpaid claims and allo-
cated loss adjustment expenses; amounts used
for (A) and (B) above shall be those reported
to the liquidator by the guaranty association in
its most recent financial report to the liqui-
dator; the liquidator’s proposal shall further
provide that if the assets available for disburse-
ment from time to time do not equal or exceed
the amount of claim payments made or to be
made by the guaranty association then dis-
bursements shall be in the amount of available
assets; the liquidator shall liquidate the assets
of the national insurer in an expeditious man-
ner, but is not required to make forced or quick
sales that would result in obtaining less than
market value for assets; unless otherwise pro-
vided for by the court, the reserves of the insol-
vent national insurer as reflected in its records
on the date of the order of liquidation shall be
used for purposes of determining the pro rata
allocations of initial disbursements among eligi-
ble guaranty associations; and
(8) the liquidator may not offset the amount to
be disbursed to any guaranty association by the
367
amount of any ‘‘special deposit’’ or any other statu-
tory deposit or asset of the insolvent national insurer
unless such deposit has been forwarded to the asso-
ciation.
(c) GUARANTY ASSOCIATION METHOD.—Nothing in
this section shall affect the method in which life insurance
guaranty associations or property casualty associations
compute their coverage obligations.
Subtitle H—The Plan
SEC. 977. WHO MAY FILE A PLAN.
(a) IN GENERAL.—Except as otherwise provided in
this section, only the receiver may file a plan within 1 year
after the earlier of the date of the order of rehabilitation
or liquidation under this title.
(b) OTHER PERMITTED PLAN FILERS.—Any party
in interest may file a plan only if—
(1) the receiver has not filed a plan within 1
year after the earlier of the date of the order of re-
habilitation or liquidation under this title; or
(2) the receiver has not filed a plan that has
been approved by the court, within 18 months after
the earlier of the date of the order of rehabilitation
or liquidation under this title.
(c) REDUCTION OR INCREASE IN TIME PERIODS.—
On request of a party in interest made within the respec-
368
tive periods specified in subsections (b)(1) and (b)(2) and
after such notice as the court deems appropriate, the court
may for cause reduce or increase the time periods of either
subsection.
(d) PLAN OBJECTIONS OR MODIFICATIONS.—Once a
plan has been filed, any party in interest may object to
the plan or propose modifications to it.
SEC. 978. CONTENTS OF A PLAN.
(a) REQUIRED PLAN PROVISIONS.—A plan shall—
(1) except as provided at subsection (e), provide
the same treatment for each claim or interest of a
particular class, unless the holder of a particular
claim or interest agrees to a less favorable treatment
of such particular claim or interest;
(2) provide adequate means for the plan’s im-
plementation;
(3) contain adequate information concerning
the financial condition of the national insurer and
the operation and effect of the plan, in sufficient de-
tail as far as is reasonably practicable in light of the
nature and history of the national insurer, the condi-
tion of the national insurer’s books and records and
the nature of the plan. Alternatively, the plan itself
may identify the sources of such information as con-
369
tained in the document depository established pursu-
ant to section 942;
(4) provide for the transfer of books, records,
documents and other information relevant to the du-
ties and obligations covered by the plan;
(5) provide for the notice to parties in interest
of the provisions of the plan and an opportunity to
be heard;
(6) provide for the termination of the receiver-
ship proceedings and discharge of the receiver, if ap-
propriate; and
(7) provide for the continuation of policies of
insurance (subject to the terms of the policies, in-
cluding any restructured provisions effected under
subsection (d) of this section) not protected (in
whole or in part) under subtitle A of title X, and for
reinsurance contracts on such policies of insurance,
that are not terminable by the insurer under the
terms of the policies of insurance or by the receiver
pursuant to subsection (f) of section 962.
(b) PERMITTED PLAN PROVISIONS.—A plan may in-
clude any other provisions not inconsistent with the provi-
sions of this title, including—
(1) payment of a dividend pursuant to section
981;
370
(2) assumption or reinsurance of all or a por-
tion of the national insurer’s remaining liabilities by,
and transfer of assets to, an insurer or other entity;
(3) to the extent appropriate, provide for appli-
cation of the market conduct standards contained in
subtitle F of title III to any entity administering
claims on behalf of the receiver or assuming direct
liabilities of the national insurer;
(4) contracting with a State guaranty associa-
tion or any other qualified entity to perform the ad-
ministration of claims covered and/or not covered by
guaranty associations;
(5) a provision for annual independent financial
and performance audits of any entity administering
claims on behalf of the receiver which is not other-
wise subject to examination pursuant to section
202(a); and
(6) termination of the national insurer’s liabil-
ities as of a date certain.
(c) LIQUIDATION ORDER; LIQUIDATING TRUST PER-
MITTED.—If the court has entered an order of liquidation
pursuant to this title, any plan may include provisions
which—
(1) establish a liquidating trust pursuant to
section 982;
371
(2) establish one or more reinsurance recover-
able trusts pursuant to section 986; or
(3) require mandatory negotiation and arbitra-
tion procedures pursuant to section 985.
(d) INSURERS
OF LIFE, DISABILITY INCOME, OR
LONG-TERM CARE INSURANCE OR ANNUITIES.—If the
national insurer has provided life, disability income, or
long-term care insurance or annuities, the plan may mod-
ify and restructure insurance policies or provide substitute
policies of insurance, subject to the limitations imposed
under subsection (b)(2) of section 1009.
(e) CERTAIN CLASSIFIED CLAIMS.—As to claims
which are classified under subsections (c), (e), or (f) of
section 975, a plan may designate and separately treat
one or more separate sub-classes consisting only of those
claims within such classes that are for or reduced to de
minimis amounts. A de minimis amount shall be any
amount equal to or less than a maximum de minimis
amount approved by the court as being reasonable and
necessary for administrative convenience.
SEC. 979. COURT APPROVAL OF PLAN.
(a) CONDITIONS OF APPROVAL.—After notice and a
hearing, the court shall approve a plan only if it finds
that—
372
(1) the plan complies with the applicable provi-
sions of this title; and
(2) with respect to each class of claims, each
claimant of such class will receive or retain under
the plan on account of such claim property of a
value, as of the effective date of the plan, that is not
less than the amount that such claimant would re-
ceive or retain if the insurer were liquidated within
a time period that is reasonable.
(b) INSURERS
OF LIFE, DISABILITY INCOME, OR
LONG-TERM CARE INSURANCE OR ANNUITIES; CONSENT
BY
GUARANTY
ASSOCIATIONS.—Notwithstanding any
other provision of this subtitle, if the plan proposes to re-
structure or substitute life, disability income, or long-term
care insurance policies or annuity contracts, the court may
not approve the plan unless each guaranty association
whose obligations are affected in any way by such modi-
fication or restructuring or substitution has given its writ-
ten consent thereto. In the event that obligations under
the policies or contracts are reinsured by one or more rein-
surance contracts, those reinsurance contracts may either
remain in force with the consent of the reinsurer or be
terminated pursuant to subsection (f) of section 962.
373
SEC. 980. EFFECT OF COURT APPROVAL OF PLAN.
(a) IN GENERAL.—Upon its entry, the provisions of
a plan and the order approving it bind the national in-
surer, any entity acquiring property under the plan, all
policyholders, creditors, and equity holders of the national
insurer.
(b) STATUS OF PROPERTY DEALT WITH BY PLAN.—
Except as provided in the plan or in the order approving
the plan, after court approval of a plan, the property dealt
with by the plan shall be free and clear of all claims and
interests of creditors and equity holders of the national
insurer.
SEC. 981. PARTIAL AND FINAL DISTRIBUTIONS OR DIVI-
DENDS.
(a) IN GENERAL.—Pursuant to a plan, a receiver
may declare and pay a partial or final distribution or divi-
dend to claimants whose claims have been allowed as pro-
vided in this title, or fixed as provided in subsection (c)
of this section.
(b) BASIS FOR DISTRIBUTION OF DIVIDEND.—In de-
termining the percentage of distributions or dividends to
be paid on such claims, the receiver may consider the esti-
mated value of the assets (including estimated reinsurance
recoverables and the estimated value of the insurer’s liabil-
ities) and the estimated value of the national insurer’s li-
abilities (including estimated liabilities for unpaid losses
374
and loss expenses and for incurred but not reported losses
and loss expenses).
(c) ESTIMATIONS.—The estimation authorized pursu-
ant to this section may be used for purposes of fixing a
creditor’s claim in the estate and for determining the per-
centage of a partial or final distribution or dividend.
(d) CLAIMS OF REINSURERS; INCURRED BUT NOT
REPORTED LOSSES.—Nothing in this section or any other
section of this title, shall be construed as authorizing the
receiver, or any other entity, to compel payment from a
reinsurer on the basis of estimated incurred but not re-
ported losses or loss expenses, except with respect to
claims allowed pursuant to section 967. The obligation of
reinsurers to make payments to the national insurer shall
be determined on the basis of reported claims that have
been allowed pursuant to subtitle G.
SEC. 982. TRANSFER OF ASSETS AND LIABILITIES TO LIQUI-
DATING TRUST.
(a) If there has been an order of liquidation entered
in the receivership proceeding then, pursuant to a plan,
a receiver may establish one or more liquidating trusts.
In the case of a liquidating trust established in connection
with a plan for a national insurer that issues property and
casualty insurance: Some or all of the national insurer’s
assets and liabilities may be transferred to such trust.
375
(b) For purposes of this section:
(1) A future claim under this section is one
which is incurred but not reported to the national
insurer as of the date the liquidating trust is estab-
lished pursuant to this section.
(2) A future claimant under this section is a
person who has, or may have, a future claim against
the national insurer.
(c) The receiver may declare and pay distributions
or dividends as provided in section 981 while reserving for
the benefit of future claimants a similar percentage divi-
dend to be paid on future claims in accordance with sub-
section (d) of this section.
(d) Future claimants may share in the proceeds of
the liquidating trust only when, and to the extent, that
any future claim is allowed pursuant to subtitle G.
(e) The receiver may petition the court for the ap-
pointment of a future claim representative who shall have
the power to represent the interests of those who may as-
sert future claims against the national insurer. Notwith-
standing this subsection, a future claimant may elect to
represent his, her or its own interests and may opt out
of being represented by the future claims representative.
(f) The liquidator may terminate liquidation pro-
ceedings and/or dispose of property free and clear of the
376
obligation to future claimants or any other individual or
entity as long as such property was disposed of in accord-
ance with this section and other applicable provisions of
a plan authorized by section 978.
SEC. 983. COLLATERALIZATION OF CASE RESERVES AND
INCURRED BUT NOT REPORTED LOSSES.
(a) Upon the entry of a receivership order, and con-
tinuing thereafter, reinsurers that are required to
collateralize their obligations to the national insurer pur-
suant to contract or law shall be required to maintain such
collateralization in accordance with the terms of the appli-
cable law or contract.
(b) Any dispute concerning the appropriate amount
of collateral shall be determined in accordance with the
procedure established in section 985(b).
SEC. 984. COMMUTATIONS.
(a) The receiver may, in his or her discretion, enter
into a voluntary commutation and release of all obligations
arising from reinsurance agreements entered into by the
national insurer, subject to the approval of the court.
(b) Nothing in this section, or any other provision
of this Act, shall be construed to override or impair any
provision in a reinsurance agreement which establishes a
commercially reasonable and actuarially sound method for
valuing and commuting the obligations of the parties to
377
the reinsurance agreement; provided, however, that such
commutation provision shall not be effective if it is dem-
onstrated to the court that at the time such provision was
entered into, the parties had reasonable cause to believe
that the national insurer was insolvent or was about to
become insolvent. Any such contractual commutation pro-
vision entered into within one year of the liquidation order
of the national insurer shall be rebuttably presumed to
have been entered into with reasonable cause to believe
that the national insurer was insolvent or about to become
insolvent.
SEC. 985. MANDATORY NEGOTIATION AND ARBITRATION.
(a)(1) The receiver may apply to the court, with no-
tice to the other party to the reinsurance agreement, for
an order requiring the parties to submit to a mandatory
negotiation and arbitration procedure in accordance with
subsection (b), if—
(A) the ratio of the national insurer’s actuari-
ally estimated casualty losses to the sum of (i) re-
ported claims on casualty losses allowed by the court
and (ii) actuarially estimated casualty losses, is 25
percent or less; or
(B) the reinsurer’s total adjusted capital is at
or below 200 percent of its authorized control level
for risk-based capital purposes.
378
(2) For purposes of this subsection—
(A) the term ‘‘casualty losses’’ means the na-
tional insurer’s aggregate losses arising out of insur-
ance contracts in the following lines: Farm owners
Multiperil, 
Homeowners 
Multiperil, 
Commercial
Multiperil, Medical Malpractice, Workers’ Com-
pensation, Other Liability, Products Liability, Auto
Liability, Aircraft (all peril) and International (of
the foregoing lines); and
(B) the term ‘‘actuarially estimated casualty
losses’’ means actuarially estimated incurred but not
reported casualty losses and estimated case reserves
for claims not yet allowed by the court.
(b)(1) Within 90 days of the court’s order pursuant
to subsection (a) of this section, or from the date that
either party to a reinsurance agreement demands arbitra-
tion pursuant to section 983(b), each party shall provide
the other party with an estimate of the liabilities between
the parties and all relevant documents and other informa-
tion supporting the estimate, including but not limited to:
underlying premium, commission and loss data; estimated
incurred but not reported losses; projected ultimate pay-
out; net present value and the discount factor proposed.
(2) If the parties are unable to reach agreement with-
in 90 days following the submission of materials required
379
in paragraph (1) of this subsection, either party may ini-
tiate the arbitration procedure set forth in paragraph (3)
of this subsection by providing the other party with a de-
mand for arbitration. A copy of the demand shall be
promptly provided to the court by the liquidator.
(3) Venue for the arbitration shall be within the dis-
trict of the court’s jurisdiction or such other location as
may be agreed to by the parties.
(A) Within 30 days of the responding party’s
receipt of the arbitration demand, each party shall
appoint an arbitrator who is a disinterested active or
inactive officer, executive or other professional with
no less than 10 years’ experience in or serving the
insurance or reinsurance industry. The two arbitra-
tors shall appoint an independent, impartial, disin-
terested umpire who is an active or inactive officer
or executive of an insurance or reinsurance com-
pany. If the arbitrators are unable to agree on an
umpire, each arbitrator shall provide the other with
the names of three qualified individuals, each arbi-
trator shall strike two names from the other’s list
and the umpire shall be chosen by drawing lots from
the two remaining individuals.
(B) Within 60 days following the appointment
of the umpire, the parties shall, unless otherwise or-
380
dered by the panel, submit to the arbitration panel
their estimates of the liabilities between the parties
and other documents and information relevant to the
determination of the parties’ rights and obligations
under the reinsurance agreements, including but not
limited to: underlying premium, commission and loss
data; estimated incurred but not reported losses;
projected ultimate payout; net present value and the
discount factor proposed.
(C) The arbitration panel shall issue an award
with respect to the parties’ obligations and the court
shall confirm such award absent proof of statutory
grounds for vacating or modifying arbitration
awards under the Federal Arbitration Act.
(D) The time periods set forth in this sub-
section may be extended upon mutual agreement of
the parties.
(c) Within 30 days of the issuance of the award pur-
suant to a receiver’s application under subsection (a)(1)
of this section in an arbitration commenced pursuant to
section 983(b) over the appropriate amount of collateral,
either the reinsurer shall post additional collateral or the
national insurer shall release collateral, as necessary to
bring the actual amount of the collateral to the amount
provided for in the arbitration panel’s award.
381
(d) Within 30 days of issuance of the award entered
pursuant to a receiver’s application under subsection
(a)(1) of this section, the reinsurer shall give notice to the
receiver that it—
(1) opts to voluntarily commute its liabilities to
the insurer for the amount of the award in return
for a full and complete release of all liabilities be-
tween the parties, whether past, present or future;
or
(2) opts not to commute its liabilities to the in-
surer, in which case the reinsurer shall establish a
reinsurance recoverable trust in the amount of 102
percent of the award. The trust shall be established
and maintained in accordance with section 986. The
reinsurer shall pay the costs and fees associated with
establishing and maintaining the trust.
(e) If the reinsurer notifies the receiver that it opts
to commute its liabilities pursuant to subsection (d)(1),
the receiver shall have 30 days to—
(1) accept the reinsurer’s offer and tender to
the reinsurer a proposed commutation and release
agreement providing for a full and complete release
of all liabilities between the parties, whether past,
present or future; or
382
(2) reject the reinsurer’s offer in exchange for
the reinsurer’s establishment of a reinsurance recov-
erable trust. If the reinsurer’s offer to commute is
rejected by the receiver in accordance with this para-
graph, the national insurer shall share equally in the
costs and fees associated with establishing and main-
taining the trust and the receiver shall not initiate
procedures pursuant to this section for a period of
5 years from the date of the receiver’s notification
pursuant to this subsection, provided that the re-
ceiver and reinsurer may still initiate procedures
pursuant to section 986(e).
SEC. 986. REINSURANCE RECOVERABLE TRUST PROVI-
SIONS.
(a) As used in this section—
(1) the term ‘‘beneficiary’’ means the domi-
ciliary insurance commissioner, as receiver of the in-
surer for whose sole benefit a reinsurance recover-
able trust is established;
(2) the term ‘‘grantor’’ means the reinsurer
who has established a reinsurance recoverable trust
for the sole benefit of the beneficiary;
(3) the term ‘‘qualified United States financial
institution’’ means an institution that—
383
(A) is organized, or in the case of a United
States branch or agency office of a foreign
banking organization, licensed under the laws of
the United States or any State thereof and has
been granted authority to operate with fiduciary
powers; and
(B) is regulated, supervised and examined
by Federal or State authorities having regu-
latory authority over banks and trust compa-
nies; and
(4) the term ‘‘reinsurance recoverable trust’’
means a trust established pursuant to section 985.
(b) The trust agreement governing a reinsurance re-
coverable trust shall—
(1) be entered into between the beneficiary, the
grantor and a trustee, which shall be a qualified
United States financial institution;
(2) create a trust account into which assets
shall be deposited in accordance with section 985; all
assets in the trust account shall be held by the
trustee at the trustee’s office in the United States;
(3) provide that the beneficiary shall have the
right to withdraw assets from the trust, only—
(A) if the claim was a reported claim al-
lowed by the court pursuant to subtitle G;
384
(B) where the beneficiary has notified the
grantor, in writing, of the court’s allowance of
the claim;
(C) if and to the extent that the amount
to be withdrawn exceeds any setoff, permitted
by section 958, due to the grantor;
(D) where 60 days has expired during
which the grantor has failed to either pay the
claim or file notice of a written dispute with re-
spect to the claim in accordance with the terms
of the reinsurance agreement; or
(E) if the beneficiary has complied with
any different or other terms and conditions mu-
tually agreed to by the beneficiary and the
grantor in the trust agreement;
(4) require the trustee to—
(A) receive assets and hold all assets in a
safe place;
(B) determine that all assets are in such
form that the beneficiary, or the trustee upon
direction by the beneficiary, may whenever nec-
essary negotiate any such assets, without con-
sent or signature from the grantor or any other
person or entity;
385
(C) furnish to the grantor and the bene-
ficiary a statement of all assets in the trust ac-
count upon its inception and at intervals no less
frequent than the end of each calendar quarter;
(D) notify the grantor and the beneficiary
within 10 days, of any deposits to or with-
drawals from the trust account;
(5) be made subject to and governed by the
laws of this state;
(6) prohibit the invasion of the trust corpus for
the purpose of paying compensation to, or reimburs-
ing the expenses of, the trustee;
(7) provide that the trustee shall be liable for
its negligence, willful misconduct or lack of good
faith;
(8) provide that the trustee may resign upon
delivery of a written notice of resignation, effective
not less than 90 days after the beneficiary and
grantor receive the notice and that the trustee may
be removed by the grantor by delivery to the trustee
and the beneficiary or a written notice of removal,
effective not less than 90 days after the trustee and
the beneficiary receive the notice, Provided, That no
such resignation or removal shall be effective until a
successor trustee has been duly appointed and ap-
386
proved by the beneficiary and the grantor and all as-
sets in the trust have been duly transferred to the
new trustee;
(9) provide that the grantor shall have the full
and unqualified right to vote any shares of stock in
the trust account; subject to other provisions of this
section, any interest or dividends paid on shares of
stock or other obligations in the trust account, shall
remain in the trust;
(10) specify categories of investments reason-
ably acceptable to the beneficiary and authorize the
trustee to invest funds and to accept substitutions,
by the grantor, that the trustee determines are at
least equal in market value to the assets withdrawn,
Provided, That no investment or substitution shall
be made without prior approval from the beneficiary,
which shall not be unreasonably or arbitrarily with-
held;
(11) provide that the beneficiary may at any
time designate a party to which all or part of the
trust assets are to be transferred; transfer may be
conditioned upon the trustee receiving, prior to or si-
multaneously, other specified assets;
(12) specify the types of assets that may be in-
cluded in the trust account which shall consist only
387
of cash in United States dollars, certificates of de-
posit issued by a United States bank and payable in
United States dollars, and investments permitted by
this State’s Insurance Act or any combination of the
above, Provided, That investments in or issued by
any entity controlling, controlled by, or under com-
mon control with either the grantor or the bene-
ficiary of the trust shall not exceed five percent of
total investments; assets deposited in the trust ac-
count shall be valued according to their current fair
market value;
(13) give the grantor the right to seek approval
from the beneficiary, which shall not be unreason-
ably or arbitrarily withheld, to withdraw from the
trust account all or any part of the trust assets and
transfer those assets to the grantor, Provided,
That—
(A) the grantor shall, at the time of with-
drawal, replace the withdrawn assets with other
qualified assets so as to maintain at all times
the deposit in the required amount; or
(B) after withdrawal and transfer, the
market value of the trust account is no less
than 102 percent of the award made pursuant
to section 985(b)(3)(c);
388
(14) provide for the return of any amount with-
drawn in excess of the actual amounts required for
payment of reported allowed claims under paragraph
(3), and for interest payments at a rate not in ex-
cess of the prime rate of interest on the excess
amounts withdrawn; and
(15) provide for termination of the reinsurance
recoverable trust in accordance with subsection (f).
(c) Nothing in this section shall be construed as alter-
ing the rights or obligations of the parties pursuant to
contractual and statutory provisions providing for notice
and the determination of claims.
(d) The grantor shall, prior to depositing assets with
the trustee, execute assignments or endorsements in
blank, or transfer legal title to the trustee of all shares,
obligations or any other assets requiring assignments, in
order that the beneficiary, or the trustee upon the direc-
tion of the beneficiary, may whenever necessary negotiate
these assets without consent or signature from the grantor
or any other entity.
(e) Either party may request that an arbitration
panel review the amount held in a reinsurance recoverable
trust. The court may order such review upon a demonstra-
tion that the amount in trust is either twenty five percent
or more deficient or 25 percent or more in excess of the
389
reinsurer’s liabilities to the national insurer. Upon such
a demonstration, parties shall reinitiate the procedures es-
tablished in section 985(b).
(f) A reinsurance recoverable trust shall terminate
upon the earlier of—
(1) the court approval of a voluntary commuta-
tion between the grantor and the beneficiary pursu-
ant to section 985;
(2) the mutual agreement of the grantor and
the beneficiary; or
(3) a finding by the court that the grantor has
discharged its liabilities to the beneficiary.
Upon termination of the trust account, all assets not pre-
viously withdrawn by the beneficiary, pursuant to para-
graph (b)(3), shall, with written approval of the bene-
ficiary, be delivered over to the grantor.
SEC. 987. LIQUIDATING TRUST PROVISIONS.
(a) As used in this section—
(1) the terms ‘‘beneficiary’’ and ‘‘beneficiaries’’
mean the creditors of the insurer for whose sole ben-
efit the liquidating trust is established;
(2) the term ‘‘grantor’’ means the domiciliary
insurance commissioner, as receiver of the insurer,
or his or her designee;
390
(3) the term ‘‘qualified U.S. financial institu-
tion’’ has the same meaning given such term in sec-
tion 986; and
(4) the term ‘‘liquidating trust’’ means a trust
established pursuant to section 986.
(b) A liquidating trust shall be established by the
grantor for the benefit of the beneficiaries, subject to ap-
proval of the court.
(c) A trust agreement governing a liquidating trust
shall be entered into between the grantor and the trustee,
which shall be a qualified United States financial institu-
tion.
(d) Assets and liabilities of the national insurer may
be transferred to the Liquidating Trust in accordance with
section 982 and shall be held by the trustee at the trust-
ee’s office in the United States.
(e) The trust agreement entered into pursuant to
subsection (b) shall—
(1) identify the beneficiaries of the trust;
(2) enumerate the authority and duties of the
trust;
(3) specify the types of assets and categories of
investments that may be held in the trust account;
391
(4) provide that the trustee shall be liable for
its negligence, willful misconduct or lack of good
faith;
(5) be made subject to and governed by the
laws of this State;
(6) provide for the compensation of the trustee
and the expense of establishing and maintaining the
trust account;
(7) provide for the distribution of trust assets
to beneficiaries of the trust; and
(8) provide for termination of the trust and dis-
tribution of any remaining assets in the trust
account—
(A) after payments have been made to all
beneficiaries,
(B) when insufficient assets exist to war-
rant maintaining the trust, or
(C) when the amount of assets in the trust
to be distributed make it impractical or uneco-
nomic to distribute to beneficiaries.
(f) The trustee shall furnish to the grantor a state-
ment of all assets in the trust account upon its inception
and at intervals no less frequent than the end of each cal-
endar quarter.
392
Subtitle I—Post Plan
SEC. 988. UNCLAIMED AND UNDISTRIBUTED FUNDS.
(a) IN GENERAL.—Distributions or dividends re-
maining unclaimed or unpaid in the receiver’s possession
for 6 months after the final order of distribution shall be
handled as other unclaimed funds and shall be paid by
the custodian thereof without interest to the person enti-
tled thereto or his or her legal representative or shall be
presumed abandoned and handled pursuant to the provi-
sions of relevant State law governing disposition of un-
claimed property.
(b) CLOSED ESTATE FUND TRUST ACCOUNT.—Sub-
ject to the approval of the court, after the completion of
all post closure activities for which moneys were reserved,
any remaining reserved assets as well as any other assets
in the hands of the receiver, that may not be practicably
or economically distributed to claimants, shall be deposited
into a segregated account to be known as the closed es-
tates fund trust account. The Director may use moneys
held in this account for paying the administrative expenses
of insurers subject to this title that lack sufficient assets
to allow the Director to perform his or her duties and obli-
gations under this title. An annual audit of the closed es-
tate fund trust account shall be performed in accordance
with section 943 regardless of its balance.
393
SEC. 989. TERMINATION OF RECEIVERSHIP PROCEEDINGS
AND DISCHARGE OF RECEIVER.
(a) PETITION TO CLOSE ESTATE.—When all assets
justifying the expense of collection and distribution have
been marshaled and distributed under this title, the re-
ceiver shall petition the court to terminate the liquidation
proceedings and to close the estate. The court may grant
such other relief as may be appropriate, including a full
discharge of all liability and responsibility of the receiver
or a reservation of assets for administrative expenses in-
curred in the closing of the estate. The receiver may rec-
ommend to the court and the court shall direct which
records should be retained for what periods of time and
which should be destroyed.
(b) DISSOLUTION.—If the dissolution of the insurer’s
corporate existence has not previously been ordered, it
shall be effected by operation of law upon the discharge
of the receiver, absent a contrary provision in the plan
approved by the court.
SEC. 990. PETITION TO REOPEN PROCEEDINGS.
The Director or other party in interest may petition
the court at any time to reopen the proceedings for good
cause, including the discovery of additional assets. If the
court is satisfied that there is good cause for reopening,
it shall so order.
394
TITLE X—INSOLVENCY
PROTECTION
Subtitle A—Life Insurance
SEC. 1001. DEFINITIONS.
For purposes of this subtitle:
(1) ACCOUNT.—The term ‘‘account’’ means ei-
ther of the two accounts referred to in section 1007.
(2) ASSOCIATION.—The term ‘‘association’’
means the State life insolvency guaranty association
created under the laws of the relevant State.
(3) AUTHORIZED
ASSESSMENT.—The terms
‘‘authorized assessment’’ and ‘‘authorized’’, when
used in the context of assessments, mean the Direc-
tor has issued an order authorizing the corporation
to call an assessment immediately or in the future
from member insurers for a specified amount. An
assessment is authorized when the order is issued.
(4) BENEFIT PLAN.—The term ‘‘benefit plan’’
means a specific employee, union or association of
natural persons benefit plan.
(5) CALLED ASSESSMENT.—The terms ‘‘called
assessment’’ and ‘‘called’’, when used in the context
of assessments, mean that a notice has been issued
by the corporation to member insurers requiring
that an authorized assessment be paid within the
395
time frame set forth within the notice. An author-
ized assessment becomes a called assessment when
notice is mailed by the corporation to member insur-
ers.
(6) STATE COMMISSIONER.—The term ‘‘State
commissioner’’ means the chief insurance regulatory
official of a State.
(7) CONTRACTUAL
OBLIGATION.—The term
‘‘contractual obligation’’ means an obligation under
a policy or certificate under a group policy, or por-
tion thereof for which coverage is provided under
section 1006.
(8) COVERED
PERSON.—The term ‘‘covered
person’’ means a person for whom coverage is pro-
vided under section 1006.
(9) COVERED POLICY.—The term ‘‘covered pol-
icy’’ means a policy or portion of a policy for which
coverage is provided under section 1006.
(10) EXTRA-CONTRACTUAL CLAIMS.—The term
‘‘extra-contractual claims’’ includes claims relating
to bad faith in the payment of claims, punitive or ex-
emplary damages or attorneys’ fees and costs.
(11) IMPAIRED INSURER.—The term ‘‘impaired
insurer’’ means a member insurer which is not an
insolvent insurer, and is placed under an order of re-
396
habilitation or conservation by a court of competent
jurisdiction.
(12) INSOLVENT INSURER.—The term ‘‘insol-
vent insurer’’ means a member insurer which is
placed under an order of liquidation by a court of
competent jurisdiction with a finding of insolvency.
(13) MEMBER INSURER.—
(A) The term ‘‘member insurer’’ means—
(i) a State life insurance company li-
censed or holding a certificate of authority
to transact in a nonqualifying State any
kind of insurance for which coverage is
provided under section 1006, including a
State insurer whose license or certificate of
authority in that State may have been sus-
pended, revoked, not renewed or volun-
tarily withdrawn; and
(ii) a national insurer that is a life in-
surance company and holds a Federal li-
cense to issue the kinds of insurance for
which coverage is provided under section
1006, including a company whose license
may have been revoked, suspended, re-
stricted or voluntarily surrendered.
(B) Such term does not include—
397
(i) a non-life insurance company,
other than an insurer licensed to transact
only health insurance;
(ii) a hospital or medical service orga-
nization, whether profit or nonprofit;
(iii) a health maintenance organiza-
tion;
(iv) a fraternal benefit society;
(v) a mandatory State pooling plan;
(vi) a mutual assessment company or
other person that operates on an assess-
ment basis;
(vii) an insurance exchange; or
(viii) an entity similar to any of the
above.
(14) MOODY’S CORPORATE BOND YIELD AVER-
AGE.—The term ‘‘Moody’s corporate bond yield av-
erage’’ means the Monthly Average Corporates as
published by Moody’s Investors Service, Inc., or any
successor thereto.
(15) NONQUALIFYING STATE.—The term ‘‘non-
qualifying State’’ means a State that is not a quali-
fied State as defined in section 1003.
(16) POLICY.—The term ‘‘policy’’ means a pol-
icy or contract.
398
(17) POLICYOWNER.—The term ‘‘policyowner’’
means, with respect to a policy the person who is
identified as the legal owner under the terms of the
policy or who is otherwise vested with legal title to
the policy through an assignment, absolute on its
face, completed in accordance with the terms of the
policy and properly recorded as the policyowner on
the books of the insurer. Such term does not include
a person with a mere beneficial interest in a policy
or a person to which a policy is assigned for collat-
eral security purposes.
(18) PREMIUMS.—The term ‘‘premiums’’ means
amounts or considerations (by whatever name called)
received on covered policies less returned premiums,
considerations and deposits and less dividends and
experience credits. Such term does not include
amounts or considerations received for policies or for
the portions of policies for which coverage is not pro-
vided under subsection (b) of section 1006 except
that assessable premium shall not be reduced on ac-
count of subsection (b)(2)(C) of section 1006, relat-
ing to interest limitations, and subsection (e)(1)(B)
of section 1006, relating to limitations with respect
to 
one 
individual, 
one 
participant 
and 
one
policyowner. Such term does not include—
399
(A) premiums on an unallocated annuity
contract, or
(B) with respect to multiple non-group
policies of life insurance owned by one
policyowner, whether the policyowner is an indi-
vidual, firm, corporation or other person, and
whether the persons insured are officers, man-
agers, employees or other persons, premiums in
excess of $5,000,000 with respect to these poli-
cies, regardless of the number of policies held
by the policyowner.
(19) RECEIVERSHIP COURT.—In the case of a
State insurer, the term ‘‘receivership court’’ means
the court having jurisdiction over the conservation,
rehabilitation or liquidation of the insurer. In the
case of a national insurer, such term means the
United States district court or other United States
court having jurisdiction over the receivership pro-
ceedings involving the national insurer.
(20) RESIDENT.—The term ‘‘resident’’ means a
person to whom a contractual obligation is owed and
who resides in a nonqualified State on the date of
entry of a court order that determines a member in-
surer to be an impaired insurer or a court order that
determines a member insurer to be an insolvent in-
400
surer, 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 prin-
cipal place of business. Citizens of the United States
that are either (1) residents of foreign countries, or
(2) residents of United States possessions, territories
or protectorates that do not have an association
similar to qualified State associations shall be
deemed residents of the nonqualifying State, in the
case of national insurers, and the State of domicile
of other insolvent insurers, that issued the policies.
(21) STRUCTURED
SETTLEMENT
ANNUITY.—
The term ‘‘structured settlement annuity’’ means an
annuity purchased in order to fund periodic pay-
ments for a plaintiff or other claimant in payment
for or with respect to personal injury suffered by the
plaintiff or other claimant.
(22) STATE.—The term ‘‘State’’ means a State,
the District of Columbia and Puerto Rico.
(23) STATE INSURANCE COMPANY AND STATE
LIFE INSURANCE COMPANY.—The terms ‘‘State in-
surance company’’ and ‘‘State life insurance com-
pany’’ mean a State-chartered insurance company
that underwrites and sells life insurance, health in-
401
surance, disability income insurance, long-term care
insurance, annuity contracts, or funding agreements;
(24) SUPPLEMENTAL
CONTRACT.—The term
‘‘supplemental contract’’ means a written agreement
entered into for the distribution of proceeds under a
life or annuity policy.
(25) UNALLOCATED ANNUITY CONTRACT.—The
term ‘‘unallocated annuity contract’’ means an an-
nuity 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 the contract or cer-
tificate.
SEC. 1002. NATIONAL INSURER PARTICIPATION IN QUALI-
FIED STATE ASSOCIATIONS.
(a) QUALIFIED
STATE
ASSOCIATION
MEMBER-
SHIP.—A national insurer holding a Federal license to
issue life insurance or annuities must, as a condition of
its authority to transact business, become and continue
as a member of a qualified State’s association in each
State in which the national insurer is doing business.
(b) DEFINITION OF DOING BUSINESS.—A national
insurer is doing business in a State for purposes of this
subtitle if it has any policies on the life or lives of residents
of the State, collects premiums from a policyowner resi-
402
dent in the State, or has current obligations to
policyowners or beneficiaries of policies in that State.
SEC. 1003. QUALIFIED STATE DEFINED.
(a) QUALIFIED STATE DEFINED.—For purposes of
this title, the term ‘‘qualified State’’ means a State which
has established an association—
(1) that provides protection for covered persons
in the event of insolvency of any national insurer or
State insurer doing business in the State that meets
or exceeds the standards set forth in sections 1006,
1008, and 1010; and
(2) which has been determined by the Director
to comply with the standards set forth in sections
1006, 1008, 1009 (including the definitions of ‘‘im-
paired insurer’’ and ‘‘insolvent insurer’’ in section
1001), and 1010, and such determination has not
been revoked.
(b) DEEMED COMPLIANCE.—An association shall be
deemed in compliance with and the requirements of sub-
section (a) until 3 years after the effective date of this
Act, following which date an association must meet those
requirements. An association that is determined by the Di-
rector not to meet the standards required in subsection
(a) at any time on or after 3 years following the effective
date of this Act shall be preempted by this subtitle. The
403
Director may, for good cause, extend this 3-year period
for not more than 6 months as to any association. The
Director shall notify an association’s board of directors
and the relevant State’s State commissioner that the asso-
ciation’s qualification under subsection (a) has been re-
voked for the reasons stated, effective 90 days following
the date of such notification.
SEC. 1004. TRANSITION RULES WHEN ASSOCIATION PRE-
EMPTED.
In the event an association’s qualification is revoked
under section 1003 following a date on which a member
insurer of that association has been determined to be in-
solvent, for insolvencies occurring on or before the date
on which the standard benefits of this title apply, and
prior to a termination of receivership proceedings—
(1) the Director shall develop a plan, in con-
sultation with the association and the relevant
State’s State commissioner, to provide appropriate
benefits and coverage to covered persons, and as-
sessments appropriate to the line of insurance af-
fected, which plan may include benefits and coverage
provided in whole or in part by the corporation;
(2) such plan shall incorporate appropriate ad-
justments in the event payments for benefits have
been made under the association’s coverage, includ-
404
ing the adjustment of benefits transferred to, and
assumption of liabilities by, succeeding insurance
companies; and
(3) appropriate supplemental assessments, if
necessary, may be made pursuant to section 1010,
by the corporation as the Director finds necessary to
effect the change in benefits provided under this
title.
SEC. 1005. ESTABLISHMENT OF THE NATIONAL LIFE INSUR-
ANCE GUARANTY CORPORATION; PROTEC-
TION 
FOR 
RESIDENTS 
IN 
PREEMPTED
STATES.
(a) ESTABLISHMENT OF THE CORPORATION.—There
is established the National Life Insurance Guaranty Cor-
poration. The corporation shall be a nonprofit corporation
and shall have succession until dissolved by Act of the
Congress. The corporation—
(1) shall not be an agency or instrumentality of
the United States Government; and
(2) except as otherwise provided in this subtitle,
shall be subject to, and have all the powers conferred
upon a nonprofit corporation by, the District of Co-
lumbia Nonprofit Corporation Act (section 29–
301.01 et seq., D.C. Official Code).
405
(b) MEMBERSHIP IN THE CORPORATION.—The mem-
bership of the corporation shall consist of all member in-
surers.
(c) CORPORATE GOVERNANCE.—
(1) BOARD OF DIRECTORS.—The board of di-
rectors of the corporation shall be the governing
body of the corporation and shall be vested with all
powers necessary for the management and adminis-
tration of the affairs of the corporation and the pro-
motion of its purposes as authorized by this Act.
The board’s authority shall be specified in the by-
laws of the corporation.
(2) INITIAL BOARD.—The initial board of the
corporation shall be elected by the membership of
the corporation, provided that if the membership
fails to elect the initial board of the corporation
within 3 years of the effective date of this Act, then
the initial board shall be appointed by the Director.
Membership on the board shall be fairly representa-
tive of member insurers of differing size and lines of
business written.
(3) BYLAWS.—The Director shall prescribe the
initial bylaws and rules governing the corporation
which shall set forth the composition of the board,
the term of board members, filling of board vacan-
406
cies, board compensation, election of officers and
procedures to call board meetings, and all matters
necessary for the governance of the corporation not
addressed by the District of Columbia Nonprofit
Corporation Act.
(4) AMENDMENTS TO BYLAWS AND RULES.—
Amendments to the bylaws and rules of the corpora-
tion following the establishment of the initial bylaws
and rules as provided in paragraph (3) shall be
adopted by the board of the corporation following
the approval thereof by the Director.
(d) RELATIONSHIP OF CORPORATION TO THE FED-
ERAL GOVERNMENT.—
(1) The corporation shall be subject to super-
vision and oversight of the Director.
(2) The obligations of the corporation shall not
be backed, directly or indirectly, by the full faith and
credit of the United States. The corporation shall re-
ceive no financial assistance from or have any au-
thority to borrow from the United States.
(3) Funds held by or due to the corporation
shall not be included in the budget of the United
States, nor may the United States borrow or pledge
such funds.
407
(e) CORPORATION TO PROVIDE PROTECTION IN PRE-
EMPTED STATES.—The corporation shall provide the pro-
tections under this subtitle for covered persons, as set
forth in section 1006, in any State in which the operations
and activities of the association have been preempted pur-
suant to section 1003.
(f) CONTRACTING WITH PERSON TO ADMINISTER
BENEFITS.—The corporation may, with the approval of
the Director, contract with another person to administer
the benefits to be provided by the corporation under this
subtitle.
(g) FUNDING OF BENEFITS.—Funds for the provi-
sion of covered benefits by the corporation shall be in ac-
cordance with the formulas and procedures, and subject
to the limitations of, section 1010. Premiums and other
considerations for purposes of such assessments shall in-
clude all nationwide premiums of national insurers on the
covered lines of business.
SEC. 1006. PROTECTIONS AGAINST INSOLVENCY: COV-
ERAGE AND LIMITATIONS.
(a) COVERED PERSONS.—This subtitle shall provide
coverage for the policies specified in subsection (d)—
(1) to persons who, regardless of where they re-
side (except for certificate holders under group poli-
cies who are not residents of a nonqualifying State),
408
are the beneficiaries, assignees or payees of the per-
sons covered under paragraph (2);
(2) to persons who are owners of or certificate
holders under the policies (other than unallocated
annuity contracts, and structured settlement annu-
ities) and in each case who—
(A) are residents of a nonqualifying State,
or
(B) are not residents, but only if—
(i) the insurer that issued the policies
is domiciled in a nonqualifying State; and
(ii) the persons are not eligible for
coverage by an association in any other
State due to the fact that the insurer was
not licensed in the State at the time speci-
fied in the State’s association law; and
(3) for structured settlement annuities specified
in subsection (b), paragraphs (1) and (2) shall not
apply, and this title shall (except as provided in
paragraphs (5) and (6)) provide coverage to a per-
son who is a payee under a structured settlement
annuity (or beneficiary of a payee if the payee is de-
ceased), if the payee—
(A) is a resident of a nonqualifying State,
regardless of where the policyowner resides, or
409
(B) is not a resident of a nonqualifying
State, but only if—
(i)(I) the policyowner of the struc-
tured settlement annuity is a resident of a
nonqualifying State, or
(II) the policyowner of the structured
settlement annuity is not a resident of a
nonqualifying State, but—
(aa) the insurer that issued the
structured settlement annuity is domi-
ciled in a nonqualifying State; and
(bb) the State in which the
policyowner resides has an associa-
tion; and
(ii) neither the payee (nor beneficiary)
nor the policyowner is eligible for coverage
by the association of the State in which the
payee or policyowner resides.
(b) This subtitle shall not provide coverage to a per-
son who is a payee (or beneficiary) of a policyowner resi-
dent of a nonqualifying State, if the payee (or beneficiary)
is afforded any coverage by a qualified State’s association.
(c) This subtitle is intended to provide coverage to
persons who are residents of a nonqualifying State and,
in special circumstances, to persons not resident in a non-
410
qualifying State. In order to avoid duplicate coverage, if
a person who would otherwise receive coverage under this
title is provided coverage under the laws of any State other
than the nonqualifying State, the person shall not be pro-
vided coverage under this title. In determining the applica-
tion of the provisions of this subsection in situations where
a person could be covered by the association of more than
one qualifying or nonqualifying State, whether as a
policyowner, payee, beneficiary or assignee, this title shall
be construed in conjunction with the laws of such States
to result in coverage by only one association.
(d) POLICIES COVERED.—
(1) IN GENERAL.—This subtitle shall provide
coverage to the persons specified in subsection (a)
for direct, non-group life or annuity policies and
supplemental contracts to any of these and for cer-
tificates under direct group policies, except as lim-
ited by this title. Annuity contracts and certificates
under group annuity policies include allocated agree-
ments, structured settlement annuities, and any im-
mediate or deferred annuity policies.
(2) POLICIES
NOT
COVERED.—This subtitle
shall not provide coverage for—
411
(A) a portion of a policy not guaranteed by
the insurer, or under which the risk is borne by
the policyowner;
(B) a reinsurance contract, unless assump-
tion certificates have been issued pursuant to
the reinsurance contract;
(C) a portion of a policy to the extent that
the rate of interest on which it is based, or the
interest rate, crediting rate or similar factor de-
termined by use of an index or other external
reference stated in the policy employed in calcu-
lating returns or changes in value—
(i) averaged over the period of 4 years
prior to the date on which the Director be-
comes obligated under this title with re-
spect to the policy, exceeds a rate of inter-
est determined by subtracting 2 percentage
points from Moody’s Corporate Bond Yield
Average averaged for that same 4-year pe-
riod or for such lesser period if the policy
was issued less than 4 years before the
member insurer becomes an impaired or
insolvent insurer under this subtitle; and
(ii) on and after the date on which the
Director becomes obligated with respect to
412
the policy, exceeds the rate of interest de-
termined by subtracting 3 percentage
points from Moody’s Corporate Bond Yield
Average as most recently available;
(D) a portion of a policy issued to a plan
or program of an employer, membership asso-
ciation or other person to provide life or annu-
ity benefits to its employees, members or oth-
ers, to the extent that the plan or program is
self-funded or uninsured, including but not lim-
ited to benefits payable by an employer, mem-
bership association or other person under—
(i) a multiple employer welfare ar-
rangement as defined in section 514 of the
Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1144);
(ii) a minimum premium group insur-
ance plan;
(iii) a stop-loss group insurance plan;
or
(iv) an administrative services only
contract;
(E) a portion of a policy to the extent that
it provides for—
413
(i) dividends or experience rating
credits;
(ii) voting rights; or
(iii) payment of any fees or allowances
to any person, including the policyowner,
in connection with the service to or admin-
istration of the policy;
(F) a policy issued in a nonqualified State
by an insurer (other than a national insurer) at
a time when it was not licensed or did not have
a certificate of authority to issue the policy in
the nonqualified State;
(G) a portion of a policy to the extent that
the assessments required by section 1010 with
respect to the policy are preempted by Federal
or State law;
(H) an obligation that does not arise under
the express written terms of the policy issued
by the insurer to the policyowner, including
without limitation—
(i) claims based on marketing mate-
rials;
(ii) claims based on side letters, riders
or other documents that were issued by the
414
insurer without meeting applicable policy
form filing or approval requirements;
(iii) misrepresentations of or regard-
ing policy benefits;
(iv) extra-contractual claims; or
(v) a claim for penalties or consequen-
tial or incidental damages;
(I) a contractual agreement that estab-
lishes an insurer’s obligations to provide a book
value accounting guaranty for defined contribu-
tion 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 insurer;
(J) a portion of a policy 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, but
which have not been credited to the policy or as
to which the policyowner’s rights are subject to
forfeiture, as of the date the member insurer
becomes an impaired or insolvent insurer under
this title, whichever is earlier. If a policy’s in-
terest or changes in value are credited less fre-
quently than annually, then for purposes of de-
415
termining the values that have been credited
and are not subject to forfeiture under sub-
section (b)(2)(C) of section 1005, the interest
or change in value determined by using the pro-
cedures defined in the policy 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;
(K) activities, assets, liabilities or obliga-
tions of a protected cell established pursuant to
section 323;
(L) a funding agreement; and
(M) an unallocated annuity contract.
(e) COVERAGE LIMITATIONS.—
(1) IN GENERAL.—The benefits provided under
this subtitle shall in no event exceed the lesser of—
(A) the contractual obligations for which
the insurer is liable or would have been liable
if it were not an impaired or insolvent insurer,
or
(B) with respect to one life, regardless of
the number of policies—
(i) $300,000 in life insurance death
benefits, but not more than $100,000 in
416
net cash surrender and net cash with-
drawal values for life insurance;
(ii) $100,000 in the present value of
annuity benefits, including net cash sur-
render and net cash withdrawal values;
(iii) with respect to each payee of a
structured settlement annuity (or bene-
ficiary or beneficiaries of the payee if de-
ceased), $100,000 in present value annuity
benefits, in the aggregate, including net
cash surrender and net cash withdrawal
values, if any.
(2) LIMITATION.—In no event shall benefits
exceed—
(A) an aggregate of $300,000 in benefits
with respect to any one life under paragraph
(1)(B)(i), or
(B) with respect to one policyowner of mul-
tiple non-group policies of life insurance, wheth-
er the policyowner is an individual, firm, cor-
poration or other person, and whether the per-
sons insured are officers, managers, employees
or other persons, more than $5,000,000 in ben-
efits, regardless of the number of policies held
by the policyowner.
417
(3) OTHER CONSIDERATIONS.—The limitations
set forth in this subsection are limitations on bene-
fits under this subtitle before taking into account ei-
ther the subrogation and assignment rights or the
extent to which those benefits could be provided out
of the assets of the impaired or insolvent insurer at-
tributable to covered policies. The obligations for
benefits under this subtitle may be met by the use
of assets attributable to covered policies or reim-
bursed to the corporation pursuant to the subroga-
tion and assignment rights in subsection (i) of sec-
tion 1009.
(f) OTHER EXCLUSIONS.—The corporation 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 in-
surer under a covered policy that do not materially affect
the economic values or economic benefits of the covered
policy.
SEC. 1007. ACCOUNTS FOR ADMINISTRATION AND ASSESS-
MENTS.
For purposes of administration and assessment, the
corporation shall establish the following accounts:
(1) A life insurance account.
(2) An annuity account.
418
SEC. 1008. BOARD OF DIRECTORS.
The board of directors of a qualifying State’s associa-
tion shall provide for representation of insurers on a basis
that does not unfairly discriminate against national insur-
ers or against insurers domiciled in other jurisdictions,
and shall be fairly representative of insurers of differing
sizes and lines of insurance written. State commissioners
shall be member insurers and may be represented by offi-
cers at the discretion of the member insurer.
SEC. 1009. POWERS AND DUTIES OF THE CORPORATION.
(a) IMPAIRED INSURER.—Subject to the coverage
limitations set forth in section 1006, if a member insurer
is an impaired insurer, the corporation may, in its discre-
tion, and subject to any conditions imposed by the cor-
poration that do not impair the contractual obligations of
the impaired insurer and that are approved by the Direc-
tor, meet its obligation under subsection (e) of section
1005 by doing taking one of the following actions:
(1) Guarantee, assume or reinsure, or cause to
be guaranteed, assumed, or reinsured, any or all of
the policies of the impaired insurer.
(2) Provide such monies, pledges, loans, notes,
guarantees or other means as are proper to effec-
tuate paragraph (1) and assure payment of the con-
tractual obligations of the impaired insurer pending
action under paragraph (1).
419
(b) INSOLVENT INSURER.—Subject to the coverage
limitations set forth in section 1006, if a member insurer
is an insolvent insurer, the corporation shall, in its discre-
tion, meet its obligation under subsection (e) of section
1005 by taking one of the actions under the following two
paragraphs:
(1)(A)(i) Guaranty, assume or reinsure, or
cause to be guaranteed, assumed or reinsured, the
policies of the insolvent insurer; or
(ii) assure payment of the contractual obliga-
tions of the insolvent insurer; and
(B) provide monies, pledges, loans, notes, guar-
antees, or other means reasonably necessary to dis-
charge the duties imposed by this section; or
(2) Provide benefits and coverages in accord-
ance with the following provisions:
(A) With respect to life insurance policies
and annuities, assure payment of benefits for
premiums identical to the premiums and bene-
fits (except for terms of conversion and renew-
ability) that would have been payable under the
policies of the insolvent insurer, for claims
incurred—
(i) with respect to group policies, not
later than the earlier of the next renewal
420
date under those policies or 45 days, but
in no event less than 30 days, after the
date on which the corporation becomes ob-
ligated under this section with respect to
the policies;
(ii) with respect to non-group policies,
not later than the earlier of the next re-
newal date (if any) under the policies or 1
year, but in no event less than 30 days,
from the date on which the corporation be-
comes obligated under this section with re-
spect to the policies.
(B) Make diligent efforts to provide all
known insureds or annuitants (for non-group
policies), or group policyowners with respect to
group policies, 30 days notice of the termi-
nation (pursuant to subparagraph (A)) of the
benefits provided.
(C) With respect to non-group policies cov-
ered by this title, make available to each known
insured or annuitant, or policyowner 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 eligi-
ble for replacement group coverage, make avail-
421
able substitute coverage on an individual basis
in accordance with the provisions of subpara-
graph (D), if the insureds or annuitants had a
right under law or the terminated policy or an-
nuity 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 subparagraph (C), the corpora-
tion 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 insur-
ability, and shall not provide for any waiting
period or exclusion that would not have applied
under the terminated policy.
(iii) The corporation may reinsure any al-
ternative or reissued policy.
(E)(i) Alternative policies adopted by the
corporation shall be subject to the approval of
the Director and the receivership court. The
422
corporation 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 the nonqualifying State if the insolvent in-
surer is not a national insurer; in the case of
an insolvent national insurer such policies shall
comply, with the provisions of this Act and pro-
vide benefits that shall not be unreasonable in
relation to the premium charged. The corpora-
tion shall set the premium in accordance with
a table of rates that it shall adopt. The pre-
mium 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
corporation shall provide coverage of a type
similar to that of the policy issued by the im-
paired or insolvent insurer, as determined by
the corporation.
(F) If the corporation elects to reissue ter-
minated coverage at a premium rate different
423
from that charged under the terminated policy,
the premium shall be set by the corporation in
accordance with the amount of insurance pro-
vided and the age and class of risk, subject to
approval of the nonqualifying State commis-
sioner in the case of a State insurer, and the
Director in the case of a national insurer, and
the receivership court.
(G) Benefits under this subtitle with re-
spect to coverage under any policy of the im-
paired or insolvent insurer or under any re-
issued or alternative policy shall cease on the
date the coverage or policy is replaced by an-
other similar policy by the policyowner, the in-
sured or the corporation.
(H) When proceeding under this para-
graph with respect to a policy carrying guaran-
teed minimum interest rates, the corporation
shall assure the payment or crediting of a rate
of interest consistent with subsection (d)(2)(C)
of section 1006.
(c) NONPAYMENT OF PREMIUMS.—Nonpayment of
premiums within 31 days after the date required under
the terms of any guaranteed, assumed, alternative or re-
issued policy or substitute coverage shall terminate bene-
424
fits under this subtitle with respect to the policy, except
with respect to any claims incurred or any net cash sur-
render value which may be due in accordance with the pro-
visions of this title.
(d) PREMIUMS DUE AFTER ENTRY OF ORDER.—
Premiums due for coverage after entry of an order of liq-
uidation of an insolvent insurer shall belong to and be pay-
able at the direction of the corporation, and the corpora-
tion shall be liable for unearned premiums due to
policyowners arising after the entry of the order.
(e) POWERS OF THE CORPORATION.—In carrying out
its duties under subsection (b), the corporation may—
(1) subject to approval by the Director, impose
permanent policy liens in connection with a guar-
antee, assumption or reinsurance contract, if the
corporation finds that the amounts which can be as-
sessed under this subtitle are less than the amounts
needed to assure full and prompt performance of the
protections provided under this subtitle, or that the
economic or financial conditions as they affect the
insurance industry are sufficiently adverse to render
the imposition of such permanent policy liens, in the
public interest; and
(2) subject to approval by the Director, impose
temporary moratoriums or liens on payments of cash
425
values and policy loans, or any other right to with-
draw funds held in conjunction with policies, in addi-
tion to any contractual provisions for deferral of
cash or policy loan value. In addition, 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, out
of the assets of the impaired or insolvent insurer,
the corporation may defer the payment of cash val-
ues, policy loans or other rights by the corporation
for the period of the moratorium or moratorium
charge imposed by the receivership court, except for
claims covered by this title to be paid in accordance
with a hardship procedure established by the liqui-
dator or rehabilitator and approved by the receiver-
ship court.
(f) DEPOSITS.—A deposit in the nonqualifying State,
held pursuant to State law or required by the State com-
missioner of the nonqualifying State for the benefit of
creditors, including policyowners, 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 the nonqualifying State or in a recip-
rocal State, pursuant to applicable State law governing re-
426
ceivership of State insurers, shall be promptly paid to the
corporation. The corporation 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
policyowners claims related to that insolvency for which
the corporation has provided statutory benefits by the ag-
gregate amount of all policyowners’ claims in nonquali-
fying State related to that insolvency and shall remit to
the domiciliary receiver the amount so paid to the corpora-
tion and retained pursuant to this subsection. Any amount
so paid to the corporation less the amount retained by it
shall be treated as a distribution of estate assets pursuant
to applicable State law governing receivership of State in-
surers of the State of domicile of the impaired or insolvent
insurer.
(g) ADVICE TO STATE COMMISSIONER.—The cor-
poration may render assistance and advice to the State
commissioner in a nonqualifying State, upon the State
commissioner’s request, concerning rehabilitation, pay-
ment of claims, continuance of coverage, or the perform-
ance of other contractual obligations of an impaired or in-
solvent insurer.
(h) STANDING.—The corporation shall have standing
to appear or intervene before a court or agency in the
State, or United States district court, with jurisdiction
427
over an impaired or insolvent insurer concerning which
benefits under this subtitle are to be provided, or with ju-
risdiction over any person or property against which the
corporation may have rights through subrogation or other-
wise. Standing shall extend to all matters germane to the
powers and duties under this subtitle, including, but not
limited to, proposals for reinsuring, modifying or guaran-
teeing the policies of the impaired or insolvent insurer and
the determination of the policies and contractual obliga-
tions.
(i) SUBROGATION.—
(1) Persons receiving benefits under this sub-
title shall be deemed to have assigned their rights
under, and any causes of action against any person
for losses arising under, resulting from or otherwise
relating to, their covered policies to the corporation
to the extent of the benefits received because of this
subtitle, whether the benefits are payments of or on
account of contractual obligations, continuation of
coverage or provision of substitute or alternative cov-
erages. The corporation shall also have the right to
require an assignment to it of such rights and
causes of action by any payee, policyowner, bene-
ficiary, insured or annuitant as a condition prece-
428
dent to the receipt of any right or benefits conferred
by this subtitle upon the person.
(2) The subrogation rights of the corporation
provided under the law of a nonqualifying State
shall be accorded the same priority against the as-
sets of the impaired or insolvent insurer as that pos-
sessed by the person entitled to receive benefits
under this subtitle.
(3) In addition to paragraphs (1) and (2), the
corporation shall have all common law rights of sub-
rogation and any other equitable or legal remedy
that would have been available to the impaired or in-
solvent insurer or policyowner, beneficiary or payee
of a policy with respect to the policy (including with-
out limitation, in the case of a structured settlement
annuity, any rights of the policyowner, beneficiary or
payee of the annuity, to the extent of benefits re-
ceived pursuant to this subtitle, against a person
originally or by succession responsible for the losses
arising from the personal injury relating to the an-
nuity or payment therefore), excepting any such per-
son responsible solely by reason of serving as an as-
signee in respect of a qualified assignment under
section 130 of the Internal Revenue Code of 1986.
429
(4) If the preceding provisions of this sub-
section are invalid or ineffective with respect to any
person or claim for any reason, the amount payable
under this subtitle with respect to the related bene-
fits under this subtitle shall be reduced by the
amount realized by any other person with respect to
the person or claim that is attributable to the poli-
cies (or portion thereof) protected by this subtitle.
(5) If benefits have been provided under this
subtitle with respect to a covered obligation and a
person recovers amounts as to which the corporation
has rights as described in the preceding paragraphs,
the person shall pay to the corporation the portion
of the recovery attributable to the policies (or por-
tion thereof) covered by this subtitle.
(j) OTHER CORPORATION POWERS.—In addition to
the rights and powers provided elsewhere in this subtitle,
the corporation may—
(1) enter into such contracts as are necessary
or proper to carry out the provisions and purposes
of this subtitle;
(2) sue or be sued, including taking any legal
actions necessary or proper to recover any unpaid
assessments under section 1010 and to settle claims
or potential claims against it;
430
(3) borrow money to effect the purposes of this
subtitle; any notes or other evidence of indebtedness
of the Corporation not in default shall be legal in-
vestments for Companies and may be carried as ad-
mitted assets;
(4) employ or retain such persons as are nec-
essary or appropriate to handle the financial trans-
actions of the corporation, and to perform such
other functions as become necessary or proper under
this subtitle;
(5) take such legal action as may be necessary
or appropriate to avoid or recover payment of im-
proper claims;
(6) exercise, for the purposes of this subtitle
and to the extent approved by the Director, the pow-
ers of a national insurer, except that the corporation
may not issue insurance policies or annuity contracts
other than those issued to provide the protections
under this subtitle;
(7) request information from a person seeking
protection under this subtitle in order to aid the cor-
poration in determining its obligations under this
subtitle with respect to the person, and the person
shall promptly comply with the request;
431
(8) become a member of an association of asso-
ciations; and
(9) take other necessary or appropriate action
to discharge its duties and obligations under this
subtitle or to exercise its powers under this subtitle.
(k) JUDGMENT.—The corporation shall have discre-
tion and may exercise reasonable business judgment to de-
termine the means by which the benefits and protections
of this subtitle will be provided in an economical and effi-
cient manner.
(l) OTHER BENEFITS.—Where the corporation has
arranged or offered to provide the benefits of this subtitle
to a covered person under a plan or arrangement that ful-
fills obligations to provide the protections under this sub-
title, the person shall not be entitled to benefits under this
subtitle in addition to or other than those provided under
the plan or arrangement.
(m) VENUE.—Venue in a suit against the corporation
arising under this subtitle shall be in the United States
district court for the District of Columbia.
SEC. 1010. ASSESSMENTS.
(a) IN GENERAL.—For the purpose of providing the
funds necessary to provide the protections and benefits
under this subtitle, the corporation shall be authorized to
assess the member insurers separately for each account,
432
at such time and for such amounts as the board of the
corporation finds necessary. Assessments shall be due not
less than 30 days after prior written notice to the member
insurers and shall accrue interest at a rate of interest
specified by law on and after the due date.
(b) CLASSES OF ASSESSMENT.—There shall be 2
classes of 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. The
board of the corporation may authorize the corpora-
tion to make a Class A assessment only against na-
tional insurers, and against national insurers and
other member insurers in nonqualifying States, to
meet its administrative and legal costs and other ex-
penses pursuant to operating rules established by
the board.
(2) Class B assessments shall be authorized and
called to the extent necessary to provide the protec-
tion and benefits under this subtitle with regard to
an impaired or an insolvent insurer.
(c) ASSESSMENT AMOUNTS.—
433
(1) The amount of a Class A assessment shall
be determined by the board of the corporation and
may be authorized and called on a pro rata or non-
pro rata basis. If pro rata, the board of the corpora-
tion may provide that it be credited against future
Class B assessments. The total of all non-pro rata
assessments shall not exceed $150 per assessed
member insurer in any one calendar year. The
amount of a Class B assessment shall be allocated
for assessment purposes among the accounts or sub-
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 as being fair and reasonable
under the circumstances.
(2) Class B assessments against member insur-
ers for each account and subaccount shall be in the
proportion that the premiums received on business
in the nonqualifying State by each assessed member
insurer on policies covered by each account or sub-
account for the 3 most recent calendar years for
which information is available preceding the year in
which the insurer became insolvent (or, in the case
of an assessment with respect to an impaired in-
surer, the 3 most recent calendar years for which in-
434
formation is available preceding the year in which
the insurer became impaired) bears to premiums re-
ceived on business in the nonqualifying State for
those calendar years by all assessed member insur-
ers.
(3) Assessments for funds to meet the require-
ments of the corporation with respect to an impaired
or insolvent insurer shall not be authorized or called
until necessary to implement the purposes of this
title. Classification of assessments under subsection
(b) and computation of assessments under this sub-
section shall be made with a reasonable degree of ac-
curacy, recognizing that exact determinations may
not always be possible. The corporation shall notify
each member insurer of its anticipated pro rata
share of an authorized assessment not yet called
within 180 days after the assessment is authorized.
(d) ABATED
OR DEFERRED ASSESSMENTS.—The
board of the corporation 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 the assessment is abated
435
or deferred may be assessed against the other member in-
surers, in a manner consistent with the basis for assess-
ments set forth in this section. Once the conditions that
caused a deferral have been removed or rectified, the mem-
ber insurer shall pay all assessments that were deferred
pursuant to a repayment plan approved by the board of
the corporation.
(e) MAXIMUM ASSESSMENT.—
(1) AMOUNT.—
(A) Subject to the provisions of subpara-
graph (B), the total of all assessments author-
ized by the corporation with respect to a mem-
ber insurer for each of the life insurance and
annuity accounts shall not in one calendar year
exceed 2 percent of that member insurer’s aver-
age annual premiums received in the nonquali-
fying State on the policies covered by the ac-
count during the 3 calendar years preceding the
year in which the insurer became an impaired
or insolvent insurer.
(B) If 2 or more assessments are author-
ized in one calendar year with respect to insur-
ers that become impaired or insolvent in dif-
ferent calendar years, the average annual pre-
miums for purposes of the aggregate assess-
436
ment percentage limitation referenced in sub-
paragraph (A) shall be equal and limited to the
higher of the 3-year average annual premiums
for the applicable subaccount or account as cal-
culated pursuant to this section.
(C) If the maximum assessment, together
with other assets held in an account or sub-
account, does not provide in 1 year in either ac-
count or subaccount an amount sufficient to
carry out the responsibilities under this title,
the necessary additional funds shall be assessed
as soon thereafter as permitted by this subtitle.
(2) The board of the corporation may provide
by operating rules a method of allocating funds
among claims, whether relating to one or more im-
paired or insolvent insurers, when the maximum as-
sessment will be insufficient to cover anticipated
claims.
(3) If the maximum assessment for a sub-
account of the life and annuity account in 1 year
does not provide an amount sufficient to provide the
protection and benefits of this subtitle, then pursu-
ant to subsection (c)(2), the other subaccounts of
the life and annuity account may be accessed by the
437
corporation for the necessary additional amount,
subject to the maximum stated in paragraph (1).
(f) REFUNDS.—The board of the corporation may, by
an equitable method as established by operating rules, re-
fund to member insurers, in proportion to the contribution
of each insurer to that account or subaccount, 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 this subtitle with regard to that
account or subaccount, including assets accruing from as-
signment, 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 corporation, and for future claims.
(g) RATES
AND DIVIDENDS.—It shall be proper
under this subtitle for any national insurer, in determining
its premium rates and policyowner dividends as to any
kind of insurance within the scope of this title, to consider
the amount reasonably necessary to meet its assessment
obligations under this subtitle.
(h) CERTIFICATES
OF CONTRIBUTION.—The cor-
poration shall issue to each insurer paying an assessment
under this subtitle, other than a Class A assessment, a
certificate of contribution, in a form prescribed by the Di-
rector, for the amount of the assessment so paid. All out-
438
standing certificates shall be of equal dignity and priority
without reference to amounts or dates of issue. A certifi-
cate of contribution may be shown by a national insurer
in its financial statement as an asset in such form and
for such amount, if any, and period of time as the Director
may approve.
(i) ASSESSMENT PROTESTS.—
(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 corporation. The payment shall be
available to meet obligations under this subtitle dur-
ing the pendency of the protest or any subsequent
appeal. Payment shall be accompanied by a state-
ment in writing that the payment is made under
protest and setting forth a brief statement of the
grounds for the protest.
(2) Within 60 days following the payment of an
assessment under protest by a member insurer, the
corporation shall notify the member insurer in writ-
ing of its determination with respect to the protest
unless the corporation notifies the member insurer
that additional time is required to resolve the issues
raised by the protest.
439
(3) Within 30 days after a final decision has
been made, the corporation shall notify the pro-
testing member insurer in writing of that final deci-
sion. Within 60 days of receipt of notice of the final
decision, the protesting member insurer may appeal
that final action to the Director.
(4) In the alternative to rendering a final deci-
sion with respect to a protest based on a question
regarding the assessment base, the corporation may
refer protests to the Director for a final decision,
with or without a recommendation from the corpora-
tion.
(5) If the protest or appeal on the assessment
is upheld, the amount paid in error or excess shall
be returned to the member insurer. Interest on a re-
fund due a protesting member shall be paid at the
rate actually earned by the corporation.
(j) INFORMATION REQUESTS.—The corporation may
request information of member insurers in order to aid
in carrying out its duties under this section and member
insurers shall promptly comply with a request.
SEC. 1011. APPEAL BY NATIONAL INSURER OF ASSESS-
MENTS.
A national insurer that has paid an assessment to
a qualified State’s association shall comply with the proce-
440
dures in that State for protesting the assessment. In the
event of an adverse determination by the State commis-
sioner in that State the national insurer may appeal to
the Director.
SEC. 1012. DUTIES AND POWERS OF DIRECTOR.
(a) DIRECTOR’S DUTIES AND POWERS.—In addition
to the duties and powers enumerated elsewhere in this
subtitle, the Director—
(1) shall provide the corporation upon request
with a statement of the premiums in nonqualifying
States for each member insurer;
(2) shall, when an impairment of a national in-
surer is declared and the amount of the impairment
is determined, serve a demand upon the impaired in-
surer to make good the impairment within a reason-
able time; notice to the impaired insurer shall con-
stitute notice to its shareholders, if any; and
(3) may either—
(A) suspend or revoke, after notice and
hearing, a Federal license of a national insurer;
or
(B) levy a forfeiture in an amount not to
exceed 5 percent of the unpaid assessment per
month, but no forfeiture shall be less than $100
per month—
441
(i) on a national insurer or other
member insurer that fails to pay an assess-
ment to the corporation when due or fails
to otherwise comply with the requirements
of this subtitle; or
(ii) on a national insurer that fails to
pay an assessment to a qualified State’s
association or otherwise comply with its
plan of operation.
(b) APPEAL BY NATIONAL INSURER.—A national in-
surer may appeal a final action of the board of directors
of the association in a qualifying State to the Director if
the appeal is taken within 60 days of its receipt of notice
of the final action being appealed.
(c) NOTIFICATION OF INTERESTED PERSONS.—The
liquidator, rehabilitator or conservator of an impaired in-
surer may notify all interested persons of the effect of this
subtitle.
SEC. 1013. COOPERATION BETWEEN DIRECTOR AND STATE
COMMISSIONERS.
(a) NOTICE TO STATE COMMISSIONERS.—The Direc-
tor shall notify the State commissioner in each State in
which a national insurer is doing business within 30 days
of taking any of the following actions against a national
insurer—
442
(1) revocation or suspension of the national in-
surer’s authority to transact insurance;
(2) the entry of a formal order that the na-
tional insurer restrict its premium writing, obtain
additional contributions to surplus, reinsure all or
any part of its business, or increase capital, surplus,
or any other account for the security of policyowners
or creditors; or
(3) the Director has reasonable cause to believe
from an examination, whether completed or in proc-
ess, of any national insurer that such national in-
surer may be an impaired or insolvent insurer.
(b) NOTICE
TO DIRECTOR.—Each State commis-
sioner shall notify the Director when any action listed in
subsection (a)(1) is taken or condition is believed to exist
with respect to a State insurer that is a member insurer.
(c) REPORT TO ASSOCIATIONS.—The Director shall
also report to the boards of directors of the appropriate
associations when the Director has taken any of the ac-
tions set forth in subsection (a). Any report to the boards
of directors shall contain all significant details of the ac-
tion taken and may be provided with the cooperation of
the corporation.
(d) OBLIGATIONS OF THE CORPORATION.—The cor-
poration may make reports and recommendations to the
443
Director, as appropriate, upon any matter germane to the
solvency, liquidation, rehabilitation or conservation of any
member insurer. The reports and recommendations shall
not be considered public documents. The corporation shall
also provide such information and advice as requested by
the Director when providing protection and benefits under
this subtitle in a nonqualifying State.
(e) NOTICE BY THE CORPORATION.—The corporation
may notify the Director of any information indicating a
member insurer in a nonqualifying State may be an im-
paired or insolvent insurer.
SEC. 1014. PROHIBITED DISCRIMINATION IN TAX TREAT-
MENT.—
No State law may discriminate between national in-
surers and other insurers with respect to deductions or
offsets of assessments against premium, franchise or in-
come tax liability to the State, and any State law that
does so shall not be effective.
SEC. 1015. MISCELLANEOUS PROVISIONS.
(a) NO REDUCTION
IN LIABILITY.—This subtitle
shall not be construed to reduce the liability for unpaid
assessments of the insureds of an impaired or insolvent
insurer operating under a plan with assessment liability.
(b) CORPORATION AS CREDITOR.—
444
(1) For the purpose of providing the protections
and benefits required under this subtitle, the cor-
poration shall be deemed to be a creditor of an im-
paired or insolvent national insurer to the extent of
assets attributable to covered policies reduced by any
amounts to which the corporation is entitled as
subrogee pursuant to subsection (i) of section 1009.
Assets of the impaired or insolvent insurer attrib-
utable to covered policies shall be used to continue
all covered policies and pay all contractual obliga-
tions of the impaired or insolvent insurer as required
by this subtitle.
(2) For purposes of this subsection, the term
‘‘assets attributable to covered policies’’ are that
proportion of the assets which the reserves that
should have been established for such policies bear
to the reserves that should have been established for
all policies of insurance written by the impaired or
insolvent insurer.
(c) DISBURSEMENTS PAYABLE TO THE CORPORA-
TION.—As a creditor of the impaired or insolvent insurer
as established in subsection (b) of this section and con-
sistent with section 975, the corporation shall be entitled
to receive a disbursement of assets out of the marshaled
assets, from time to time, as the assets become available
445
to reimburse it, as a credit against contractual obligations
required to be covered under this subtitle. If the liquidator
has not, within 120 days of a final determination of insol-
vency of an insurer by the receivership court, made an
application to the court for the approval of a proposal to
disburse assets out of marshaled assets to State associa-
tions having obligations because of the insolvency, then the
corporation shall be entitled to make application to the
receivership court for approval of its own proposal to dis-
burse these assets.
(d) 
TERMINATION; 
SHAREHOLDER
DISTRIBU-
TIONS.—
(1) Prior to the termination of any liquidation,
rehabilitation or conservation proceeding, the court
may take into consideration the contributions of the
respective parties, including the corporation, the
shareholders, and policyowners of the insolvent in-
surer, and any other party with a bona fide interest,
in making an equitable distribution of the ownership
rights of the insolvent national insurer. In such a
determination, consideration shall be given to the
welfare of the policyowners of the continuing or suc-
cessor insurer.
(2) No distribution to shareholders, if any, of
an impaired or insolvent insurer shall be made until
446
and unless the total amount of valid claims of the
Director and the corporation when acting under this
subtitle, with interest thereon for funds expended in
carrying out their powers and duties with respect to
the insurer, have been fully recovered by the Direc-
tor or the corporation, as applicable.
SEC. 1016. EXAMINATION OF THE CORPORATION; ANNUAL
REPORT.
The corporation shall be subject to examination and
regulation by the Director. The corporation shall submit
to the Director each year, not later than 120 days after
the end of its fiscal year, a financial report in a form ap-
proved by the Director and a report of its activities during
the preceding fiscal year, as they relate to the duties and
functions carried out under this subtitle.
SEC. 1017. IMMUNITY.
There shall be no liability on the part of and no cause
of action of any nature shall arise against any member
insurer or its agents or employees, the corporation or its
agents or employees, members of the board of directors,
or the Director or the Director’s representatives, for any
action or omission by them in the performance of their
powers and duties under this subtitle.
447
SEC. 1018. STAY OF PROCEEDINGS; REOPENING DEFAULT
JUDGMENTS.
All proceedings in which an insolvent national insurer
is a party in any Federal or State court shall be stayed
60 days from the date an order of liquidation, rehabilita-
tion or conservation is final to permit proper legal action
by the associations, or by the corporation when acting
under the provisions of this title, on any matters germane
to their powers or duties. As to judgment under any deci-
sion, order, verdict or finding based on default an associa-
tion, or the corporation, may apply to have such judgment
set aside by the same court that made such judgment and
shall be permitted to defend against such suit on the mer-
its.
SEC. 1019. PROHIBITED ADVERTISEMENT OF STATE ASSO-
CIATION OR THE CORPORATION IN INSUR-
ANCE SALES; NOTICE TO POLICYOWNERS.
(a) IN GENERAL.—No person, including a national
insurer or other insurance producer or affiliate of a na-
tional insurer or other insurer shall make, publish, dis-
seminate, circulate or place before the public, or cause di-
rectly or indirectly, to be made, published, disseminated,
circulated or placed before the public, in any newspaper,
magazine or other publication, or in the form of a notice,
circular, pamphlet, letter or poster, or over any radio sta-
tion or television station, or in any other way, any adver-
448
tisement, announcement or statement, written or oral,
which uses the existence of an association, or the corpora-
tion, for the purpose of sales, solicitation or inducement
to purchase any form of insurance covered by the associa-
tion or the corporation. However, such prohibition does
not apply to an association or any other entity which does
not sell or solicit insurance.
(b) DISCLAIMER.—A national insurer may not deliver
a policy to a policyowner unless a summary document de-
scribing the general purposes and current limitations of
the appropriate association, or the corporation, and com-
plying with subsection (c), is delivered to the policyowner
at the time of delivery of the policy. The document shall
also be available upon request by a policyowner. The dis-
tribution, delivery or contents or interpretation of this doc-
ument does not guarantee that either the policy or the
policyowner is covered in the event of the impairment or
insolvency of a member insurer. Failure to receive this
document does not give the policyowner, certificate holder,
or insured any greater rights than those stated in this
title. The summary document required of a national in-
surer under this subsection shall be in lieu of any similar
document required by any State.
(c) FORM OF DISCLAIMER.—The form and content
of the disclaimer required by subsection (b) shall be as
449
prescribed by the State commissioner in the State in which
the policy is delivered or issued for delivery, in the case
of a qualified State, or the Director, in the case of a non-
qualified State. The disclaimer may also include a provi-
sion that the national insurer, other insurer and insurance
producers are prohibited from using the existence of the
association and the corporation for the purpose of sales,
solicitation or inducement to purchase any form of insur-
ance.
Subtitle B—Property and Casualty
Insurance
SEC. 1020. DEFINITIONS.
For purposes of this subtitle:
(1) ACCOUNT.—The term ‘‘account’’ means ei-
ther of the three accounts referred to in section
1027.
(2) ASSOCIATION.—The term ‘‘association’’
means the State property and casualty insurance
guaranty association created under the laws of the
relevant State.
(3) CLAIMANT.—The term ‘‘claimant’’ means
any insured making a first party claim or any per-
son instituting a liability claim, provided that no
person who is an affiliate of the insolvent insurer
may be a claimant.
450
(4) COVERED CLAIM.—
(A) IN
GENERAL.—The term ‘‘covered
claim’’ means an unpaid claim, including one
for unearned premiums, submitted by a claim-
ant, which arises out of and is within the cov-
erage and is subject to the applicable limits of
an insurance policy to which this subtitle ap-
plies issued by a member insurer, if the member
insurer becomes an insolvent insurer after the
effective date of this subtitle and—
(i) the claimant or insured is a resi-
dent of a nonqualifying State at the time
of the insured event, provided that for en-
tities other than an individual, the resi-
dence of a claimant, insured or policy-
holder is the State in which its principal
place of business is located at the time of
the insured event; or
(ii) the claim is a first party claim for
damage to property with a permanent loca-
tion in a nonqualifying State.
(B) EXCLUSIONS.—Such term shall not
include—
(i) any amount awarded as punitive or
exemplary damages;
451
(ii) any amount sought as a return of
premium under any retrospective rating
plan;
(iii) any amount due any reinsurer,
insurer, insurance pool or underwriting as-
sociation as subrogation recoveries, rein-
surance recoveries, contribution, indem-
nification or otherwise; no claim for any
amount due any reinsurer, insurer, insur-
ance pool or underwriting association may
be asserted against a person insured under
a policy issued by an insolvent insurer
other than to the extent the claim exceeds
the corporation’s obligation limitations set
forth in section 1025;
(iv) any first party claims by an in-
sured 
whose 
net 
worth 
exceeds
$25,000,000 on December 31 of the year
prior to the year in which the member in-
surer becomes an insolvent insurer; pro-
vided that an insured’s net worth on that
date shall be deemed to include the aggre-
gate net worth of the insured and all of its
subsidiaries as calculated on a consolidated
basis; or
452
(v) any first party claims by an in-
sured which is an affiliate of the insolvent
insurer.
(5) INSOLVENT INSURER.—The term ‘‘insolvent
insurer’’ means a member insurer which is placed
under an order of liquidation by a court of com-
petent jurisdiction with a finding of insolvency.
(6) MEMBER INSURER.—
(A) The term ‘‘member insurer’’ means
any person who—
(i) writes any kind of insurance to
which this subtitle applies, including the
exchange of reciprocal or inter-insurance
contracts; and
(ii) is a State insurer licensed or hold-
ing a certificate of authority to transact in
a nonqualifying State any kind of insur-
ance for which coverage is provided under
section 1025, including a State insurer
whose license or certificate of authority in
that State may have been suspended, re-
voked, not renewed or voluntarily with-
drawn; or
(iii) is a national insurer that holds a
Federal license under this Act to issue the
453
kinds of insurance for which coverage is
provided under section 1025.
(B) A State insurer or national insurer
shall cease to be a member insurer effective on
the day following the termination or expiration
of its license to transact the kinds of insurance
to which this subtitle applies; provided, how-
ever, that such State insurer or national insurer
shall remain liable as a member insurer for any
and all obligations, including obligations for as-
sessments levied prior to the termination or ex-
piration of the State insurer’s or national insur-
er’s license and assessments levied after the ter-
mination or expiration, with respect to such
State insurer or national insurer that becomes
an insolvent insurer prior to the termination or
expiration of the State insurer’s or national in-
surer’s license.
(7) NET
DIRECT
WRITTEN
PREMIUMS.—The
term ‘‘net direct written premiums’’ means direct
gross premiums less return premiums written in a
nonqualifying State to which this subtitle applies
and dividends paid or credited to policyholders on
that direct business. Such term does not include pre-
miums on contracts between insurers or reinsurers.
454
(8) NON-QUALIFYING STATE.—The term ‘‘non-
qualifying State’’ means a State that is not a quali-
fied State as defined in section 1022.
(9) RECEIVERSHIP COURT.—In the case of a
State insurer, the term ‘‘receivership court’’ means
the court having jurisdiction over the conservation,
rehabilitation or liquidation of the insurer. In the
case of a national insurer holding a Federal license
under this Act, such term means the United States
district court or other United States court having ju-
risdiction over the receivership proceedings involving
such national insurer.
(10) STATE COMMISSIONER.—The term ‘‘State
commissioner’’ means the chief insurance regulatory
official of a State.
SEC. 1021. NATIONAL INSURER PARTICIPATION IN QUALI-
FIED STATE ASSOCIATIONS.
(a) QUALIFIED
STATE
ASSOCIATION
MEMBER-
SHIP.—A national insurer holding a Federal license to
issue property and casualty insurance must, as a condition
of its authority to transact business, become and continue
as a member of a qualified State’s association in each
State in which the national insurer is doing business.
(b) DEFINITION OF DOING BUSINESS.—A national
insurer is doing business in a State for purposes of this
455
subtitle if it has any policies on property with a permanent
location in the State, collects premiums from a
policyowner resident in the State, or has current obliga-
tions to policyowners or beneficiaries of policies in that
State.
SEC. 1022. QUALIFIED STATE DEFINED.
(a) QUALIFIED STATE DEFINED.—For purposes of
this subtitle, the term ‘‘qualified State’’ means a State
which has established an association—
(1) that provides protection for covered claims
in the event of insolvency of any national insurer or
State insurer doing business in the State that meets
or exceeds the standards set forth in sections 1025,
1026, and 1027; and
(2) which has been determined by the Director
to comply with the standards set forth in sections
1025, 1026, and 1027, and such determination has
not been revoked.
(b) DEEMED COMPLIANCE.—An association shall be
deemed in compliance with the requirements of subsection
(a) until 3 years after the effective date of this Act, fol-
lowing which date an association must meet those require-
ments. An association that is determined by the Director
not to meet the standards required in subsection (a) at
any time on or after 3 years following the effective date
456
of this Act shall be preempted by this subtitle. The Direc-
tor may, for good cause, extend this 3-year period for not
more than 6 months as to any association. The Director
shall notify an association’s board of directors and the rel-
evant State’s State commissioner that the association’s
qualification under subsection (a) has been revoked for the
reasons stated, effective 90 days following the date of such
notification.
SEC. 1023. TRANSITION RULES WHEN ASSOCIATION PRE-
EMPTED.
In the event an association’s qualification is revoked
under section 1022 following a date on which a member
insurer of that association has been determined to be in-
solvent, for insolvencies occurring on or before the date
on which the standard benefits of this title apply, and
prior to a termination of receivership proceedings—
(1) the Director shall develop a plan, in con-
sultation with the association and the relevant
State’s State commissioner, to provide appropriate
coverage to covered claims, and assessments appro-
priate to the line of insurance affected, which plan
may include coverage provided in whole or in part by
the corporation;
(2) such plan shall incorporate appropriate ad-
justments in the event payments for claims have
457
been made under the association’s coverage, includ-
ing the adjustment of claims transferred to, and as-
sumption of liabilities by, succeeding insurance com-
panies; and
(3) appropriate supplemental assessments, if
necessary, may be made pursuant to section 1027,
by the corporation as the Director finds necessary to
effect the change in benefits provided under this
subtitle.
SEC. 1024. ESTABLISHMENT OF THE NATIONAL PROPERTY
AND CASUALTY INSURANCE GUARANTY COR-
PORATION; PROTECTION FOR RESIDENTS IN
PREEMPTED STATES.
(a) ESTABLISHMENT OF THE CORPORATION.—There
is established the National Property and Casualty Insur-
ance Guaranty Corporation. The corporation shall be a
nonprofit corporation and shall have succession until dis-
solved by Act of the Congress. The corporation—
(1) shall not be an agency or instrumentality of
the United States Government; and
(2) except as otherwise provided in this subtitle,
shall be subject to, and have all the powers conferred
upon a nonprofit corporation by, the District of Co-
lumbia Nonprofit Corporation Act (section 29–
301.01 et seq., D.C. Official Code).
458
(b) MEMBERSHIP IN THE CORPORATION.—The mem-
bership of the corporation shall consist of all member in-
surers.
(c) CORPORATE GOVERNANCE.—
(1) BOARD OF DIRECTORS.—The board of di-
rectors of the corporation shall be the governing
body of the corporation and shall be vested with all
powers necessary for the management and adminis-
tration of the affairs of the corporation and the pro-
motion of its purposes as authorized by this Act.
The board’s authority shall be specified in the by-
laws of the corporation.
(2) INITIAL BOARD.—The initial board of the
corporation shall be elected by the membership of
the corporation, provided that if the membership
fails to elect the initial board of the corporation
within 3 years of the effective date of this Act, then
the initial board shall be appointed by the Director.
Membership on the board shall be fairly representa-
tive of member insurers of differing size and lines of
business written.
(3) BYLAWS AND RULES.—The Director shall
prescribe the initial bylaws and rules governing the
corporation which shall set forth the composition of
the board, the term of board members, filling of
459
board vacancies, board compensation, election of of-
ficers and procedures to call board meetings, and all
matters necessary for the governance of the corpora-
tion not addressed by the District of Columbia Non-
profit Corporation Act.
(4) AMENDMENTS TO BYLAWS AND RULES.—
Amendments to the bylaws and rules of the corpora-
tion following the establishment of the initial bylaws
and rules as provided in paragraph (3) shall be
adopted by the board of the corporation following
the approval thereof by the Director.
(d) RELATIONSHIP OF CORPORATION TO THE FED-
ERAL GOVERNMENT.—
(1) The corporation shall be subject to super-
vision and oversight of the Director.
(2) The obligations of the corporation shall not
be backed, directly or indirectly, by the full faith and
credit of the United States. The corporation shall re-
ceive no financial assistance from or have any au-
thority to borrow from the United States.
(3) Funds held by or due to the corporation
shall not be included in the budget of the United
States, nor may the United States borrow or pledge
such funds.
460
(e) CORPORATION TO PROVIDE PROTECTION IN PRE-
EMPTED STATES.—The corporation shall provide the pro-
tections under this subtitle for covered claims in any State
in which the operations and activities of the association
have been preempted pursuant to section 1022.
(f) CONTRACTING WITH PERSON TO ADMINISTER
BENEFITS.—The corporation may, with the approval of
the Director, contract with another person to administer
the claims submitted to the corporation under this sub-
title.
(g) FUNDING OF CLAIMS.—Funds for the provision
of covered claims by the corporation shall be in accordance
with the formulas and procedures, and subject to the limi-
tations of, section 1027. Premiums and other consider-
ations for purposes of such assessments shall include all
nationwide premiums of national insurers on the covered
lines of business.
SEC. 1025. PROTECTIONS AGAINST INSOLVENCY; COV-
ERAGE AND LIMITATIONS.
(a) COVERED CLAIMS.—This subtitle shall provide
coverage for covered claims on policies specified in sub-
section (b)—
(1) existing prior to the order of liquidation,
(2) arising within thirty (30) days after the
order of liquidation,
461
(3) arising before the policy expiration date if
less than thirty (30) days after the order or liquida-
tion, or
(4) arising before the insured replaces the pol-
icy or causes its cancellation, if the insured does so
within thirty (30) days of the order of liquidation.
(b) POLICIES COVERED.—
(1) SCOPE.—This subtitle shall provide cov-
erage to the claims specified in subsection (a) for all
kinds of direct insurance, other than—
(A) life, annuity or disability insurance;
(B) mortgage guaranty, financial guaranty
or other forms of insurance offering protection
against investment risks;
(C) fidelity or surety bonds, or any other
bonding obligations;
(D) credit insurance, vendors’ single inter-
est insurance, or collateral protection insurance
or any similar insurance protecting the interests
of a creditor arising out of a creditor-debtor
transaction;
(E) insurance of warranties or service con-
tracts including insurance that provides for the
repair, replacement or service of goods or prop-
erty, indemnification for repair, replacement or
462
service for the operational or structural failure
of the goods or property due to a defect in ma-
terials, workmanship or normal wear and tear,
or provides reimbursement for the liability in-
curred by the issuer of agreements or service
contracts that provide such benefits;
(F) title insurance;
(G) ocean marine insurance;
(H) any transaction or combination of
transactions between a person (including affili-
ates of such person) and an insurer (including
affiliates of such insurer) which involves the
transfer of investment or credit risk unaccom-
panied by transfer of insurance risk; or
(I) any insurance provided by or guaran-
teed by government.
(2) DEFINITIONS.—For purposes of this sub-
section:
(A) The term ‘‘financial guaranty insur-
ance’’ includes—
(i) failure of any obligor or obligors on
any debt instrument or other monetary ob-
ligation, including common or preferred
stock, to pay when due the principal, inter-
est, dividend or purchase price of such in-
463
strument or obligation, whether failure is
the result of a financial default or insol-
vency and whether or not the obligation is
incurred directly or as guarantor by, or on
behalf of, another obligor which has also
defaulted;
(ii) changes in the level of interest
rates whether short-term or long-term, or
in the difference between interest rates ex-
isting in various markets;
(iii) changes in the rate of exchange
of currency, or from the inconvertibility of
one currency into another for any reason;
and
(iv) changes in the value of specific
assets or commodities, or price levels in
general.
(B) The term ‘‘credit insurance’’ means in-
surance on accounts receivable.
(C) The term ‘‘ocean marine insurance’’
means any form of insurance, regardless of the
name, label or marketing designation of the in-
surance policy, which insures against maritime
perils or risks and other related perils or risks,
which are usually insured against by traditional
464
marine insurance, such as hull and machinery,
marine builders risk, and marine protection and
indemnity. Perils and risk insured against in-
clude without limitation loss, damage, expense
or legal liability of the insured for loss, damage
or expense arising out of or incident to owner-
ship, operation, chartering, maintenance, use,
repair or construction of any vessel, craft or in-
strumentality in use in ocean or inland water-
ways for commercial purposes, including liabil-
ity of the insured for personal liability of the in-
sured for personal injury, illness or death or for
loss of damage to the property of the insured
or another person.
(c) COVERAGE LIMITATIONS.—
(1) IN GENERAL.—The obligation to a claimant
under this subtitle shall be satisfied by paying to the
claimant—
(A) the full amount of a covered claim for
the benefits under a workers’ compensation in-
surance coverage; and
(B) an amount not exceeding $10,000 per
policy for a covered claim for the return of un-
earned premiums;
465
(2) OTHER LIMITATIONS.—In no event shall a
claimant be entitled to an amount in excess of the
obligation of the insolvent insurer under the policy
or coverage from which the claim arises. Notwith-
standing any other provisions of this subtitle, a cov-
ered claim shall not include a claim filed after the
final date set by the receivership court for the filing
of claims against the liquidator or receiver of an in-
solvent insurer.
SEC. 1026. BOARD OF DIRECTORS.
The board of directors of a qualifying State’s associa-
tion shall provide for representation of insurers on a basis
that does not unfairly discriminate against national insur-
ers or against insurers domiciled in other jurisdictions,
and shall be fairly representative of insurers of differing
sizes and lines of insurance written. State commissioners
shall be member insurers and may be represented by offi-
cers at the discretion of the member insurer.
SEC. 1027. POWERS AND DUTIES OF THE CORPORATION.
(a) For purposes of administration and assessment,
the corporation shall establish three separate accounts as
follows:
(1) A workers’ compensation insurance account.
(2) An automobile insurance account.
466
(3) An account for all other insurance to which
this subtitle applies.
(b)(1) The corporation shall be deemed the national
insurer to the extent of its obligation on covered claims
and to that extent shall have all rights, duties and obliga-
tions of the insolvent insurer as if the national insurer
had not become insolvent, including but not limited to the
right to pursue and retain salvage and subrogation recov-
erable on covered claims obligations to the extent paid by
the corporation.
(2) The corporation shall allocate claims paid and ex-
penses incurred among the 3 accounts separately, and as-
sess member insurers separately for each account,
amounts necessary to pay the obligations of the associa-
tion under section 1025(c) subsequent to an insolvency,
the expenses of handling covered claims subsequent to an
insolvency, and other expenses authorized by this Act, as
follows:
(A) PROPORTION.—The assessments of each
member insurer shall be in the proportion that the
net direct written premiums of the member insurer
for the calendar year preceding the assessment on
the kinds of insurance in the account bears to the
net direct written premiums of all member insurers
467
for the calendar year preceding the assessment on
the kinds of insurance in the account.
(B) NOTIFICATION.—Each member insurer
shall be notified of the assessment not later than
thirty (30) days before it is due.
(C) LIMITATION.—A member insurer may not
be assessed in any one year on any account an
amount greater than two percent (2%) of that mem-
ber insurer’s net direct written premiums for the
calendar year preceding the assessment on the kinds
of insurance in the account. If the maximum assess-
ment, together with the other assets of the corpora-
tion in any account, does not provide in any one
year in any account an amount sufficient to make all
necessary payments from that account, the funds
available shall be pro-rated and the unpaid portion
shall be paid as soon thereafter as funds become
available.
(D) PAYMENT
OF
CLAIMS.—The corporation
shall pay claims in any order which it deems reason-
able, including the payment of claims as they are re-
ceived from the claimants or in groups or categories
of claims.
(E) EXEMPTION; DEFERRAL.—The corporation
may exempt or defer, in whole or in part, the assess-
468
ment of a member insurer, if the assessment would
cause the member insurer’s financial statement to
reflect amounts of capital or surplus less than the
minimum amounts required for a certificate of au-
thority by a jurisdiction in which the member in-
surer is authorized to transact insurance. However,
during the period of deferment no dividends shall be
paid to shareholders or policyholders. Deferred as-
sessments shall be paid when the payment will not
reduce capital or surplus below required minimums.
(F) REFUND.—Payments shall be refunded to
those member insurers receiving larger assessments
by virtue of such deferment, or at the election of the
member insurer, credited against future assess-
ments.
(G) SET OFF.—A member insurer may set off
against any assessment, authorized payments made
on covered claims and expenses incurred in the pay-
ment of claims by the member insurer if they are
chargeable to the account for which the assessment
is made.
(3) The corporation shall investigate claims brought
against the corporation and adjust, compromise, settle and
pay covered claims to the extent of the corporation’s obli-
gation and deny all other claims. The corporation may re-
469
view settlements, releases and judgments to which the in-
solvent insurer or its insureds were parties to determine
the extent to which the settlements, releases and judg-
ments may be properly contested. The corporation shall
have the right to appoint or substitute and to direct legal
counsel retained under liability insurance policies for the
defense of covered claims.
(4) The corporation shall notify claimants in this
State as deemed necessary by the Director, to the extent
records are available to the corporation.
(5) The corporation shall handle claims through its
employees or through one or more insurers or through one
or more insurers or other persons designated as servicing
facilities. Designation of a servicing facility is subject to
the approval of the Director, but the designation may be
declined by a member insurer.
(6) The corporation shall reimburse each servicing fa-
cility for obligations of the corporation paid by the facility
and for expenses incurred by the facility while handling
claims on behalf of the corporation and shall pay the other
expenses of the corporation authorized by this Act.
(b) OTHER POWERS.—The corporation may:
(1) Employ or retain persons necessary to han-
dle claims and perform other duties of the corpora-
tion.
470
(2) Borrow funds necessary to affect the pur-
poses of this Act in accordance with the plan of op-
eration.
(3) Sue or be sued.
(4) Negotiate and become a party to contracts
necessary to carry out the purpose of this Act.
(5) Perform other acts necessary or proper to
effectuate the purpose of this Act.
(6) Refund to member insurers in proportion to
the contribution of each member insurer to the cor-
poration that amount by which the assets of the cor-
poration exceed the liabilities, if at the end of any
calendar year, the board of directors finds that the
assets of the corporation exceed the liabilities of the
corporation as estimated by the board of directors
for the coming year.
SEC. 1028. DUTIES AND POWERS OF DIRECTOR.
(a) DIRECTOR’S DUTIES AND POWERS.—The Direc-
tor shall—
(1) notify the corporation of the existence of an
insolvent insurer not later than three days after the
Director receives notice of the determination of the
insolvency. The corporation shall be entitled to a
copy of a complaint seeking an order of liquidation
with a finding of insolvency against a member in-
471
surer at the same time that the complaint is filed
with a court of competent jurisdiction; and
(2) provide the corporation with a statement of
the net direct written premiums of each member in-
surer upon request of the board of directors.
(b) ADDITIONALLY DUTIES AND POWERS.—The Di-
rector may—
(1) suspend or revoke, after notice and hearing,
the Federal license of a national insurer that fails to
pay an assessment when due; or
(2) levy a fine on a member insurer that fails
to pay an assessment, not to exceed five percent of
the unpaid assessment per month, except that a fine
shall not be less than $100 per month.
(c) JUDICIAL REVIEW.—A final action or order of the
Director under this subtitle shall be subject to judicial re-
view under the terms of section 803.
SEC. 1029. EFFECT OF PAID CLAIMS.
(a) IN GENERAL.—A person recovering under this
subtitle shall be deemed to have assigned any rights under
the policy to the corporation to the extent of his or her
recovery from the corporation. Every insured or claimant
seeking the protection of this subtitle shall cooperate with
the corporation to the same extent as the person would
have been required to cooperate with the insolvent insurer.
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The corporation shall have no cause of action against the
insured of the insolvent insurer for sums it has paid out
except causes of action the insolvent insurer would have
had if the sums had been paid by the insolvent insurer
and except as provided in subsection (b). In the case of
an insolvent insurer subject to assessment liability, the
payments of claims of the corporation shall not operate
to reduce the liability of the insureds to the receiver, liqui-
dator, or statutory successor for unpaid assessments.
(b) RIGHT TO RECOVER.—The corporation shall have
the right to recover from the following persons the amount
of any covered claim paid on behalf of the person pursuant
to this subtitle—
(1) an insured whose net worth on December
31 of the year immediately preceding the date the
member insurer becomes an insolvent insurer ex-
ceeds $50 million and whose liability obligations to
other persons are satisfied in whole or in part by
payments made under this subtitle; and
(2) any person who is an affiliate of the insol-
vent insurer and whose liability obligations to other
persons are satisfied in whose or in part by pay-
ments made under this subtitle.
(c) CORPORATION AS CLAIMANT.—The corporation
shall be recognized as a claimant in the liquidation of an
473
insolvent insurer for amounts paid by the corporation on
covered claims as determined under this subtitle and shall
receive dividends and other distributions at the priority
established by section 975, or applicable state law. The
receiver, liquidator or statutory successor of an insolvent
insurer shall be bound by determinations of covered claim
eligibility under this subtitle and by settlement of claims
made by the corporation to the extent such determinations
or settlements satisfy obligations of the corporation. The
receiver shall not be bound in any way by such determina-
tions or settlements to the extent there remains a claim
against the insolvent insurer. The receivership court shall
grant the claims priority equal to that which the claimant
would have been entitled against the assets of the insolvent
insurer in the absence of this subtitle.
(d) FILINGS.—The corporation shall periodically file
with the receiver or liquidator of the insolvent insurer
statements of the covered claims paid by the corporation
and estimates of anticipated claims on the corporation
which shall preserve the rights of the corporation against
the assets of the insolvent insurer.
SEC. 1030. EXHAUSTION OF OTHER COVERAGE.
(a) IN
GENERAL.—Any person having a claim
against an insolvent insurer, whether or not the insurer
is a member insurer, under any provision in an insurance
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policy other than a policy of an insolvent insurer which
is also a covered claim, shall be required to exhaust first
his or her rights under the policy. An amount payable on
a covered claim under this subtitle shall be reduced by the
amount of recovery under the insurance policy.
(b) MULTIPLE ASSOCIATIONS.—A person having a
claim which may be recovered from more than one associa-
tion in a qualifying or nonqualifying State, or from one
or more such associations and the corporation, shall seek
recovery first from the association of the place of residence
of the insured (or, if the insured resides in a nonqualifying
State, from the corporation), except that if it is a first
party claim for damages to property with a permanent lo-
cation, the person shall seek recovery first from the asso-
ciation of the location of the property. If it is a workers’
compensation claim, the person shall seek recovery first
from the association of the residence of the claimant (or,
if the claimant resides in a nonqualifying State, from the
corporation). A recovery under this subtitle shall be re-
duced by the amount of recovery from another association.
SEC. 1031. COOPERATION BETWEEN DIRECTOR AND STATE
COMMISSIONERS.
(a) NOTICE TO STATE COMMISSIONERS.—The Direc-
tor shall notify the State commissioner in each State in
which a national insurer is doing business within 30 days
475
of taking any of the following actions against a national
insurer—
(1) revocation or suspension of the national in-
surer’s authority to transact insurance;
(2) the entry of a formal order that the na-
tional insurer restrict its premium writing, obtain
additional contributions to surplus, reinsure all or
any part of its business, or increase capital, surplus,
or any other account for the security of policyowners
or creditors; or
(3) the Director has reasonable cause to believe
from an examination, whether completed or in proc-
ess, of any national insurer that such national in-
surer may be an insolvent insurer.
(b) NOTICE
TO DIRECTOR.—Each State commis-
sioner shall notify the Director when any action listed in
subsection (a)(1) is taken or condition is believed to exist
with respect to a State insurer that is a member insurer.
(c) REPORT TO ASSOCIATIONS.—The Director shall
also report to the boards of directors of the appropriate
associations when the Director has taken any of the ac-
tions set forth in subsection (a). Any report to the boards
of directors shall contain all significant details of the ac-
tion taken and may be provided with the cooperation of
the corporation.
476
(d) OBLIGATIONS OF THE CORPORATION.—The cor-
poration may make reports and recommendations to the
Director, as appropriate, upon any matter germane to the
solvency, liquidation, rehabilitation or conservation of any
member insurer. The reports and recommendations shall
not be considered public documents. The corporation shall
also provide such information and advice as requested by
the Director when providing protection and benefits under
this title in a nonqualifying State.
(e) NOTICE BY THE CORPORATION.—The corporation
may notify the Director of any information indicating a
member insurer in a nonqualifying State may be an insol-
vent insurer.
SEC. 1032. PROHIBITED DISCRIMINATION IN TAX TREAT-
MENT.
No State law may discriminate between national in-
surers and other insurers with respect to deductions or
offsets of assessments against premium, franchise or in-
come tax liability to the State, and any State law that
does so shall not be effective.
SEC. 1033. EXAMINATION OF THE CORPORATION; ANNUAL
REPORT.
The corporation shall be subject to examination and
regulation by the Director. The corporation shall submit
to the Director each year, not later than 120 days after
477
the end of its fiscal year, a financial report in a form ap-
proved by the Director and a report of its activities during
the preceding fiscal year, as they relate to the duties and
functions carried out under this subtitle.
SEC. 1034. IMMUNITY.
There shall be no liability on the part of and no cause
of action of any nature shall arise against any member
insurer or its agents or employees, the corporation or its
agents or employees, members of the board of directors,
or the Director or the Director’s representatives, for any
action or omission by them in the performance of their
powers and duties under this subtitle.
SEC. 1035. STAY OF PROCEEDINGS.
(a) STAY.—All proceedings in which an insolvent in-
surer is a party in any Federal or State court shall, sub-
ject to waiver by the corporation in specific cases involving
covered claims, be stayed for six (6) months and additional
time that may be determined by the court from the date
the insolvency is determined or an ancillary proceeding is
instituted, whichever is later, to permit proper defense by
the corporation of all pending causes of action. As to cov-
ered claims arising from a judgment under decision, ver-
dict or finding based on the default of an insolvent insurer
or its failure to defend an insured, the corporation, either
on its own behalf or on behalf on an insured, may apply
478
to have the judgment, order, decision, verdict or finding
set aside by the same court or administrator that made
the judgment, order, decision, verdict or finding and shall
be permitted to defend the claim on the merits.
(b) RECORDS.—The liquidator, receiver or statutory
successor of an insolvent insurer covered by this subtitle
shall permit access by the corporation or its authorized
representative to the insolvent insurer’s records which are
necessary for the corporation in carrying out its functions
under this subtitle with regard to covered claims. The liq-
uidator, receiver, or statutory successor shall provide the
corporation or its representative with copies of those
records upon the request of the corporation and at the
expense of the corporation.
TITLE XI—EFFECTIVE DATE
SEC. 1101. EFFECTIVE DATE.
Except as otherwise specifically provided in this Act,
this Act shall take effect upon the expiration of the 12-
month period beginning on the date of the enactment of
this Act.
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