Document:

exv10w1

Exhibit 10.1

IN THE MATTER OF

THE MARKET CONDUCT EXAMINATION OF

THE MEGA LIFE AND HEALTH INSURANCE COMPANY,

MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND

THE CHESAPEAKE LIFE INSURANCE COMPANY

REGULATORY SETTLEMENT AGREEMENT

A. Parties

     This Regulatory Settlement Agreement (“Agreement”) is entered into as of May 29, 2008
(“Execution Date”), by and among the above named Insurance Companies and the Signatory Regulators.

     A.1. “The Companies” consist of the following three companies:

	 	§	 	The MEGA Life and Health Insurance Company (“MEGA”),
	 
	 	§	 	Mid-West National Life Insurance Company of Tennessee (“Mid-West”), and
	 
	 	§	 	The Chesapeake Life Insurance Company (“Chesapeake”).

     A.2. The “Signatory Regulators” are made up of the following:

	 	§	 	The “Lead Regulators”, which are made up of two State regulators:

	 	§ 	 	Director of the Alaska Division of Insurance, and
	 
	 	§ 	 	Insurance Commissioner of Washington State.

	 	§	 	The “Domestic Regulators,” which are made up of two State regulators:

	 	§ 	 	Insurance Commissioner of the State of Oklahoma, and
	 
	 	§ 	 	Commissioner of Insurance of the State of Texas.

	 	§	 	The “Participating Regulators”, which are made up of the insurance regulators of
each of the remaining jurisdictions that agree to approve this Agreement.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 1

 

B. Scope of Agreement

     The scope of this Agreement is the findings contained in the Multi-State Market Conduct
Examination of The HealthMarkets, Inc. Insurance Companies (“the Examination Report” or “the
Report”). The Report is attached as Attachment A, and is incorporated into this Agreement by
reference as though fully set forth here.

C. Effective Date

     C.1. The Effective Date of this Agreement is 30 days after the date this Agreement is executed
by the insurance regulators of twenty-seven jurisdictions where the Companies are
licensed/authorized to do business.

D. Recitals and Background

     D.1. MEGA is and has been a licensed insurance company domiciled in the State of Oklahoma.

     D.2. Mid-West is a licensed insurance company domiciled in the State of Texas. Mid-West was
formerly domiciled in the State of Tennessee.

     D.3. Chesapeake is and has been a licensed insurance company domiciled in the State of
Oklahoma.

     D.4. MEGA and Mid-West are subsidiaries of HealthMarkets, Inc. (“HealthMarkets”) (formerly
known as UICI), a Delaware corporation, with its principal place of business in North Richland
Hills, Texas. Chesapeake is a subsidiary of MEGA. MEGA, Mid-West, and Chesapeake are each bound by
any continuing conditions imposed upon them, regardless of their subsidiary status.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION
OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 2

 

     D.5. On March 15, 2005, the States of Washington and Alaska issued a call letter to
UICI1 for a multi-state examination with stated examination objectives. Those
objectives are fully set forth in the Report, Attachment A to this Agreement, at pages 6 – 7.

     D. 6. The examination was performed by an examination contracting firm, RSM McGladrey, Inc.

E. Monetary Penalty and Penalty for Failure to Perform

     E.1. The Companies agree that they are responsible, jointly and severally, to pay a monetary
penalty in settlement with each Signatory Regulator of the regulatory findings as described in
Attachment A. The total amount of the penalty is $20,000,000 (Twenty Million Dollars). This
amount is payable within 10 business days of the Effective Date of this Agreement as defined in
section C.1 of this Agreement or the sign-on period and any extensions, as described in Sections
H.7 and H.9 of this Agreement, whichever is later. The manner of payment is set forth in
Attachment B to this Agreement.

     E.2. In the event the Companies are found not to have met fully each of the standards set
forth in the Standards for Performance Measurement as set forth in Attachment C, the Companies
agree that they are responsible, jointly and severally, to pay a Penalty for Failure to Perform
calculated as listed in Attachment E to this Agreement. The maximum total possible Penalty for
Failure to Perform is $10,000,000 (Ten Million Dollars). Reference Section G.1.

     E.3. The Monitoring Regulators as defined in Section G.2 will determine the amount, if any, of
the Penalty for Failure to Perform as a result of the Examination set forth in section

 

			
	1	 	On April 14, 2006, UICI announced that it had changed
its corporate identity to HealthMarkets, Inc..

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 3

 

 

G.4.of this Agreement. The amount of the Penalty for Failure to Perform must be agreed to by
a majority of the Monitoring Regulators. Once agreed upon, the Penalty for Failure to Perform
shall be the sole and exclusive remedy for the Signatory Regulators with regard to non-compliance
with the Standards for Performance Measurement, as shown by the results of the follow up
Examination as set forth in Section G.4.

F. Outreach Program

     F.1.  The Companies will develop an Outreach Program which will be fully
implemented within six months after the Effective Date of this Agreement.  The Outreach Program
will have at least the features described in Sections F.2 and F.3 of this Agreement.

     F.2. The Companies will send a notice to all existing insureds whose medical policies were
issued by the Companies prior to August 1, 2005.  The notice will be substantially similar to the
sample attached to this Agreement as Attachment F and will be subject to approval by the Monitoring
Regulators. The Companies will also maintain a website that is responsive to coverage questions as
set forth below.

     The notice will be mailed no later than six months after the Effective Date and will include
the following:

• A toll free number, mailing address, and email address for insureds to access
with any questions.  The toll-free number, mail and email will be directed to Company personnel
as described in Section F.3 of this agreement who will be able to provide detailed information
about the insured’s specific plan of insurance.

• A website address for the Companies. The website content related to this Outreach
Program will be acceptable to both parties and will include the following:

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 4

 

	 	o	 	A “frequently asked questions” section that answers relevant
coverage questions, and which will be subject to an initial review by the
Monitoring Regulators.
	 
	 	o	 	General coverage descriptions which will provide information
about any existing coverages provided by the Companies including, but not
limited to, preventive care, outpatient care for illnesses and injuries,
inpatient hospital care, and emergency care (including care in Urgent Care
centers and emergency rooms, and ambulance coverage).
	 
	 	o	 	A listing of the mailing address, email address and toll free
number to contact the Company personnel described in Section F.3. of this
agreement.
	 
	 	o	 	Information about how to pursue the claims appeal and grievance
process and contact information.

     F.3. The Companies will provide a toll-free telephone number that insureds may call to ask any
questions about their existing coverage. The number will connect them to appropriate Company
personnel who will:

	 	•	 	Be trained to respond to these calls
	 
	 	•	 	Be able to walk the insured through his or her coverage using plain language to
confirm the insured’s understanding of the coverage.
	 
	 	•	 	Explain insurance coverages under the insured’s existing plans.
	 
	 	•	 	Offer to send the insured a complete certificate of insurance.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 5

 

	 	•	 	Provide information about any existing coverages provided by the Companies
including, but not limited to, preventive care, outpatient care for illnesses and injuries,
inpatient hospital care, and emergency care (including care in Urgent Care centers and
emergency rooms, and ambulance coverage).

G. Standards for Performance Measurement

     G.1. The Companies will continue their implementation of a plan of corrective action following
the Effective Date of this Agreement. The purpose of this plan will be to address and resolve the
findings in the Examination Report. The standards upon which the Companies’ performance of this
plan will be measured will be known as the “Standards for Performance Measurement” and are set
forth in Attachment C to this Agreement. All standards in the Standards for Performance
Measurement will be met no later than December 31, 2009.

     G.2. The Domestic Regulators, the Lead Regulators and the California Department of Insurance,
will work together to monitor the Companies’ compliance with this Agreement. This group of
regulators monitoring the Companies’ compliance will be called the “Monitoring Regulators.” The
Companies understand that in addition to the standards set forth in the Standards for Performance
Measurement, it is the Companies’ obligation to take whatever action is needed for the Companies to
comply with the laws in each jurisdiction with which they do business with respect to the issues of
concern detailed in the examination.

     G.3 The Companies and Monitoring Regulators agree to meet each other’s reasonable request to
discuss the Companies’ progress in implementing the terms of this Agreement. The Companies agree
to deliver to the Washington State Commissioner semi-annual written reports in the format set forth
in Attachment D to this Agreement. The period of time covered by each

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 6

 

report, and the due date for each report is set forth in Attachment D to this Agreement. The
reporting period will extend from January 1, 2008 through December 31, 2009.

     G.4. The Monitoring Regulators will:

	 	§	 	review the Companies’ reports of their progress in implementing the Standards for
Performance Measurement;
	 
	 	§	 	provide summary reports of the Companies’ progress to the Participating Regulators;
	 
	 	§	 	identify the need for additional measures if the Companies are not in compliance
with this Agreement and communicate the same to the Companies in a timely manner; and
	 
	 	§	 	implement a follow-up examination of the Companies. This examination will be
initiated no later than July 1, 2010. The examination shall be conducted in accordance
with the then-current NAIC Market Regulation Handbook as a guideline. The purpose of
the examination will be to:

	 	o	 	Assess the accuracy and validity of the Companies’ reports;
	 
	 	o	 	Assess the Companies’ compliance with this Agreement, including
the Standards for Performance Measurement;
	 
	 	o	 	Assess the need for any possible Penalty for Failure to
Perform; and,
	 
	 	o	 	Conclude the terms of this Agreement and the multi-state market
conduct examination of the Companies.

     G.5. The Monitoring Regulators may personally participate in monitoring under this Agreement,
or may designate employees or other representatives such as contracted examiners to participate on
their behalf. The designation of participants will be at the discretion of each Monitoring
Regulator. This examination will be conducted as a follow-up examination under the

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 7

 

direction of the Monitoring Regulators as set forth in Section G.4.

     G.6. The Companies agree that
the reasonable costs of monitoring by the Monitoring Regulators and/or the contracted examiner(s)
designated by the Monitoring Regulators will be the Companies’ sole responsibility.

     G.7. The
monitoring of the Companies’ compliance with this Agreement constitutes an ongoing market analysis
action by the State of Washington, as a Lead Regulator, pursuant to Washington Insurance Code
Chapter 48.37 RCW. To the extent permitted or required by law, the work papers, recorded
information, documents, and copies of work papers, recorded information, and documents produced by,
obtained by, or disclosed to the Signatory Regulators pursuant to this Agreement shall be given
confidential treatment and shall not be subject to subpoena, civil investigative demand or other
process, and may not be made public by the Signatory Regulators or to any other person, and shall
not be public records subject to disclosure pursuant to other relevant Washington law. To the
extent permitted or required by law, the Signatory Regulators agree to provide written notice to
the Companies if the disclosure of this information is requested by a non-regulator and to permit
sufficient time between the Companies’ receipt of such notice and any disclosure of the information
for the Companies to take measures to protect the confidentiality of the information.

     G.8 Compliance with each of the standards in the Standards for Performance Measurement will be
measured on either a pass/fail basis or a tolerance level as established in Attachment C. 
Compliance with each standard of each action item articulated in the Standards for Performance
Measurement (Attachment C) shall be considered compliance with the

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 8

 

Standards for Performance Measurement.  As set forth in Section G.1 of this Agreement, the
Companies will be in compliance on or before December 31, 2009.

     G.9. Following implementation of the examination referenced in Section G.4. , if the
Monitoring Regulators, in consultation with other Participating Regulators, determine that the
Companies are not in compliance with each standard in the Standards for Performance Measurement ,
the Companies agree to pay the applicable portion of the Penalty for Failure to Perform, calculated
as set forth in Attachment E of this Agreement. The Companies also agree to undertake such other
remedial measures as are agreed to by the Monitoring Regulators and the Companies. The Companies
understand that the Monitoring Regulators, in consultation with the Participating Regulators, will
determine appropriate action by the regulators.

     G.10. This Agreement does not prevent any Signatory Regulator from taking any appropriate
action if the Companies violate any provision of the Regulator’s insurance laws and regulations
outside the scope of this Agreement.

     G.11 Signatory Regulators, other than Domestic Regulators, agree not to examine the Companies
on matters set forth in the Scope of Examination on pages 27 and 28 of the Examination Report until
after the date of completion of the terms of this Agreement, including the re-examination contained
in Section G.4.

     G.12 Signatory Regulators, other than Domestic Regulators, agree to terminate pending,
suspended or inactive examinations and investigations of the Companies on matters set forth in
Scope of Examination on pages 27 and 28 of the Examination Report, including the time frame of the
multi-state examination.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 9

 

     G.13 This Agreement is not intended and may not be construed to limit the authority of any
Signatory Regulator to investigate and take appropriate action, including bringing an
administrative enforcement action with claim for penalties, against the Companies with regard to a
consumer or provider complaint.

     G.14. If the Monitoring Regulators, in consultation with the Participating Regulators,
determine that the Companies are not in compliance with the Standards for Performance Measurement
in a particular jurisdiction of a Signatory Regulator, the Companies agree to work with that
Signatory Regulator to address and resolve the issues. In the event that the Signatory Regulator
and the Companies cannot resolve such issues, the Signatory Regulator may take other appropriate
action within the context of the jurisdiction’s laws. In connection with any action taken under
this paragraph, a Signatory Regulator shall not impose a monetary penalty in excess of the amount
that would have been payable to that Signatory Regulator individually under Section G.10.

     G. 15. In the event that the Monitoring Regulators find, after consultation with the
Companies, that the Companies have intentionally breached the terms of the Agreement, then any
penalty or fine imposed by the Signatory Regulators as a result of such finding shall not be
limited by the penalty provisions of this Agreement.

H. Other Provisions

     H.1. By entering into this Agreement, the Signatory Regulators and Companies intend to resolve
all the findings in the Report, including any alleged violations of laws and regulations. The
Companies neither admit nor deny (1) the regulatory findings in the Report and (2) that their
conduct during the examination period violated any law or regulation, and desire to enter into

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 10

 

this Agreement in order to promote regulatory efficiency. By the execution, delivery of this
Agreement and/or any Applicable Consent Order as defined in Section H.7 (and except as necessary to
enforce the terms hereof), and payment of the Monetary Penalty set forth in Section E.1. each
Signatory Regulator does hereby release and forever discharge the Companies and all officers,
directors, agents and representatives of and from all civil or administrative causes, actions,
claims, damages, fines, sanctions, losses, demands, or other liability that the Signatory
Regulators could pursue or seek for matters set forth in the Scope of Examination set forth on
pages 27 and 28 of the Examination Report, and the findings contained in the Examination Report.

     H.2. The Signatory Regulators shall have the sole and exclusive right to enforce this
Agreement. If the Signatory Regulators fail at any time to require strict performance by the
Companies of any of the terms, provisions or conditions of this Agreement, this will in no way
affect the Signatory Regulators’ rights to enforce those terms, provisions or conditions. If the
Signatory Regulators at any time waive any breach of any terms, provisions or conditions of this
Agreement, this will not be construed or deemed a waiver of any succeeding breach of any term,
provision or condition.

     H.3. When an issue regarding interpretation of this Agreement applies to more than one
jurisdiction, the Signatory Regulators and the Companies agree that Washington law shall govern.
When an issue regarding this Agreement is specific to one jurisdiction, the Signatory Regulators
and the Companies agree that the particular substantive law of that jurisdiction will be used to
interpret, apply and enforce any provision of this Agreement in that jurisdiction. In such
case(s), the appropriate forum is in the courts or before the regulatory agency of that

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 11

 

particular jurisdiction. Nothing in this Agreement enlarges, diminishes, supersedes or
preempts the insurance laws and regulations of any Signatory Regulator’s jurisdiction.

     H.4. If the Companies default under any obligation under this Agreement, they shall use
commercially reasonable efforts to cure the default as soon as reasonably practicable. If the
default is not remedied within 90 business days following personal delivery or delivery by
facsimile of a written notice pursuant to Section H.18 specifying the default (during which period
the Signatory Regulators and the Companies will make reasonable efforts to resolve any disputes
regarding the default), the Signatory Regulator(s) may seek administrative and/or judicial
enforcement of this Agreement, provided that if the Signatory Regulator’s laws provide for an
administrative hearing, the Companies may waive their right to a hearing to the extent permitted by
law. The Signatory Regulators reserve the right to pursue any other remedy or remedies for
violations of this Agreement. Nothing in this Agreement will be construed to waive or limit the
rights of the Signatory Regulators to seek such other additional remedies. In addition to the
other penalties applicable pursuant to this agreement, the Signatory Regulators retain the right to
impose any other regulatory penalty otherwise available by law, including fines, for the Company’s
intentional breach of the terms of this Agreement.

     H.5. Nothing in this Agreement confers any rights upon any persons or entities other than the
Signatory Regulators and the Companies. Further, the parties do not intend for this Agreement to
have collateral estoppel or res judicata effect in any legal proceeding against the Companies.

     H.6. The Companies may not seek or accept, directly or indirectly, indemnification under any
insurance policy for any amounts payable under this Agreement.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 12

 

     H.7. To become a party to this Agreement, an Insurance Director, Commissioner, Superintendent
or his or her designee must execute and deliver a signed signature page to the Insurance
Commissioner of the State Of Washington within 60 days from the date following the receipt of this
Agreement from the State of Washington. If a Signatory Regulator finds that applicable state law,
regulation or procedure requires the preparation and execution of a consent order in order to carry
out the terms of this Agreement, such a consent order (the “Applicable Consent Order”) will be
prepared by the Participating Regulator within 60 days following the Effective Date. The Lead
Regulators and the Companies may waive or extend the 60-day period for Participating Regulators to
execute this Agreement. For purposes of this Agreement, an “Applicable Consent Order” shall be
satisfactory to the Companies if it: (i) incorporates by reference and attaches via exhibit a copy
of this Agreement, (ii) expressly adopts and agrees to the provisions of this Agreement, and (iii)
includes only those other terms that may be legally required in the jurisdiction of the applicable
Participating Regulator. In order to be legally required, the term must be specified by statute,
regulation, bulletin or other interpretive document, or case law and the statute, regulation,
bulletin or other interpretive document, or case law must further require the inclusion of the term
in an agreement between the Participating Regulator and its regulated entities. However, nothing
in this Agreement will be construed to require any jurisdiction to execute and deliver an
Applicable Consent Order if that jurisdiction elects instead to sign this Agreement.

     H.8. By its signature, each Signatory Regulator gives his or her express assurance that:

	 	§	 	This Agreement is enforceable by its terms under the applicable laws, regulations
and judicial rulings in its respective jurisdiction;

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 13

 

	 	§	 	The Signatory Regulator, on behalf of his or her respective jurisdiction, has the
authority to enter into this Agreement and bind that party now and in the future; and
	 
	 	§	 	The Signatory Regulator has reviewed and agrees with the terms and conditions as set
forth in this Agreement.

     H.9. The Monitoring Regulators and the Companies may mutually agree, in writing, to any
reasonable extensions of time that might become necessary to carry out the provisions of this
Agreement.

     H.10. This Agreement (including Attachments) and/or any Applicable Consent Order issued by a
Signatory Regulator set forth the entire agreement among the parties with respect to its subject
matter and supersedes all prior agreements, arrangements or understandings (whether in written or
oral form) between the Companies and the Signatory Regulators.

     H.11. This Agreement (or its Attachments) may be amended upon request of any Participating
Regulator or the Companies, provided that such amendment does not materially alter this Agreement.
Such amendment requires a majority vote of the Monitoring Regulators and agreement by the Companies
but does not require the consent of any Participating Regulator. This includes, but is not limited
to, technical or typographical corrections. All such amendments to this Agreement shall be in
writing.

     H.12. Nothing in this Agreement or any of its terms and conditions may be interpreted to alter
in any way the contractual terms of any insurance policy or health benefit plan issued or acquired
either by the Companies or by the parties to such contract.

     H.13. Except in a proceeding to enforce the terms of this Agreement, neither the Companies nor
the Signatory Regulators may offer this Agreement or any related negotiations,

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 14

 

statements or court proceedings as evidence of an admission or concession of any liability or
wrongdoing whatsoever on the part of any person or entity, including but not limited to the
Companies or any affiliates thereof, or as a waiver by the Companies or any of its affiliates of
any applicable defense, including without limitation any applicable statute of limitations or
statute of frauds.

     H.14. In addition to payments required under this Agreement, the Companies agree to pay the
reasonable expenses incurred by the Monitoring Regulators and the Participating Regulators for
their travel and incidental expenses associated with the negotiation and implementation of the
provisions of this Agreement. Such expenses will be payable within 30 days of the presentation of
invoices. Moreover, reasonable expenses of the regulators or their designees incurred in
monitoring the Companies’ compliance with this Agreement, including the expenses of conducting or
attending any meetings, presentations, or discussions with the Companies or other regulators, shall
be the responsibility of the Companies.

     H.15. Except as provided in H.1, nothing in this Agreement limits the authority of the
Signatory Regulators to conduct any regulatory functions, including dealing with specific instances
of consumer complaints, licensing changes, or rate and form filings.

     H.16. This Agreement may be signed in multiple counterparts. Each will constitute a duplicate
original, but taken together, they will constitute one and the same instrument.

     H.17. If any portion of this Agreement is held invalid by a court of competent jurisdiction,
the invalid portion will be deemed to be severed only within that court’s jurisdiction. All
remaining provisions of this Agreement will be given full force and effect and will not in any way
be affected.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 15

 

     H.18. All notices permitted or required to be delivered under this Agreement must be in
writing and will be deemed delivered:

	 	§	 	At the time they are delivered by hand;
	 
	 	§	 	One business day after transmission by facsimile or other electronic system
(evidenced by machine generated receipt);
	 
	 	§	 	Five business days after being placed in the hands of a commercial courier service
for express delivery; or
	 
	 	§	 	10 business days after placement in the mail. All notices must be mailed as
follows:

	 	o	 	Registered or certified mail with return receipt requested.
	 
	 	o	 	Postage prepaid.
	 
	 	o	 	Addressed to the following addresses or a party’s most current
principal address of which the party sending the notice has been notified:

If to the Companies:

Mike Colliflower

Executive Vice President and General Counsel

9151 Boulevard 26

North Richland Hills, TX 76180

817-255-5498

mike.colliflower@healthmarkets.com

If to the Lead or Monitoring Regulators:

Leslie Krier

Market Conduct Oversight Manager

Office of Insurance Commissioner

Insurance 5000 Building

PO Box 40259

Olympia, WA 98504-0259

360-725-7216

lesliek@oic.wa.gov

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 16

 

     H.19. The Companies will be excused from performance for any period and to the extent that the
Companies are prevented from performing any services, in whole or in part, as a result of delays
caused by an act of God, civil disturbance, court order, or other cause beyond the Companies’
reasonable control, including failures or fluctuations in electrical power, light, or
telecommunications equipment. Such non-performance will not be considered for determining the
Companies’ compliance with this Agreement. However, the Companies agree to establish and maintain
commercially reasonable recovery steps, including technical disaster recovery facilities,
uninterruptible power supplies for computer equipment, and communications. The Companies agree to
use commercially reasonable efforts to ensure that its business will be operational within 72 hours
of a performance failure due to one of the causes listed above.

     H.20. The Signatory Regulators and the Companies agree to make a reasonable effort to provide
each other a copy of press releases pertaining to this Agreement at least 24 hours prior to
release. This information is to be sent to the contacts listed in Section H.18.

THE MEGA LIFE AND HEALTH INSURANCE COMPANY

	 	 	 	 	 	 	 
	BY:

	 	 	 	DATE	 	 
	 

	 
	 	 	 	 
	 

	SIGNATURE	 	 	 	 
	 
	 	 	 	 	 	 
	ITS:
	 	 	 	 	 	 
	 

	 	 	 	 	 
	 

	PRINTED TITLE	 	 	 	 

	 	 	 	 	 	 	 	 	 
	I,

	 	 	 	, hereby affirm that I am the
	 	 	 	of
	 

	 
	 	 	 
	 

	 	PRINTED NAME
	 	 	 	PRINTED TITLE	 	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 17

 

     The Mega Life and Health Insurance Company and have the authority to execute this Agreement on
behalf of that company.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 18

 

MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE

	 	 	 	 	 	 	 	 	 
	BY:

	 	 	 	 	 	DATE	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	SIGNATURE	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ITS:
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	PRINTED TITLE	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	I,

	 	 	 	, hereby affirm that I am the
	 	 	 	of
	 

	 
	 	 	 
	 

	 	PRINTED NAME
	 	 	 	PRINTED TITLE	 	 

Mid-West National Life Insurance Company of Tennessee and have the authority to execute this
Agreement on behalf of that company.

THE CHESAPEAKE LIFE INSURANCE COMPANY

	 	 	 	 	 	 	 	 	 
	BY:

	 	 	 	 	 	DATE	 	 
	 

	 	 
	 	 	 	 	 	 
	 

	 	SIGNATURE	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ITS:
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	PRINTED TITLE	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	I,

	 	 	 	, hereby affirm that I am the
	 	 	 	of
	 

	 
	 	 	 
	 

	 	PRINTED NAME
	 	 	 	PRINTED TITLE	 	 

The Chesapeake Life Insurance Company and have the authority to execute this Agreement on behalf of
that company.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 19

 

	 	 	 	 	 
	WASHINGTON STATE OFFICE OF THE INSURANCE COMMISSIONER
	 
	 	 	 	 
	BY:

	 	 	 	DATE                                         
	 

	 	 	 	 
	 

	 	Mike Kreidler,

Insurance Commissioner of Washington State	 	 
	 
	 	 	 	 
	ALASKA DIVISION OF INSURANCE	 	 
	 
	 	 	 	 
	BY:

	 	 	 	DATE                                         
	 

	 	 	 	 
	 

	 	Linda S. Hall,	 	 
	 

	 	Director, Alaska Division of Insurance	 	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 20

 

PARTICIPATING REGULATOR ADOPTION OF

THE MEGA LIFE AND HEALTH INSURANCE COMPANY,

MIDWEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND

THE CHESAPEAKE LIFE INSURANCE COMPANY

REGULATORY SETTLEMENT AGREEMENT

On behalf of [Insert Jurisdiction and Insurance Regulatory Agency], I, [Insert name of insurance
regulatory official executing the Agreement], hereby adopt, agree, and approve this Agreement.

	 	 	 	 	 
	[NAME OF INSURANCE REGULATORY AGENCY]
	 
	 	 	 	 
	BY:

	 	 	 	DATE                                         
	 

	 	 	 	 
	 

	 	SIGNATURE	 	 
	 
	 	 	 	 
	 	 	 
	PRINTED NAME OF REGULATORY OFFICIAL	 	 
	 
	 	 	 	 
	 	 	 
	 

	 	PRINTED TITLE	 	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 21

 

ATTACHMENT A

Report

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 22

 

ATTACHMENT B

MONETARY PENALTY AND ALLOCATION TO SIGNATORY STATES

A. Definitions – For purposes of this Attachment, the following definitions shall apply.

     A. 1. “Monetary Penalty” means the sum referenced in Section E. 1. of this
Agreement.

     A.2. “Pro Rata State Allocation of Monetary Penalty” means the sum resulting from the
calculation set forth in section B.5. below.

B. Pro Rata State Allocation of Monetary Penalty

     The portion of the Monetary Penalty due to a Signatory Regulator agreeing to
participate in this Agreement will be calculated as follows:

     B. 1. Source Data: Direct Premium data will be derived from the Accident and Health column of
the Schedule T page of the 2005 annual statements filed with the NAIC for each of the Companies
(i.e., Mega , Chesapeake, and Mid-West)

     B.2. Accident and Health Premiums for each state: The accident and health premiums from B.1.
for each of the three companies will be added together to arrive at total accident and health
premiums for each state. This will be done for each state that is a Signatory Regulator.

     B. 3. Grand total for all signatory states: Each state total of accident and health premiums
in B.2. will be added together to arrive at a Grand total for all states. The Grand total for all
states will be used as base premiums upon which all the Signatory Regulators will base their pro
rata per cent.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 23

 

     B.4. Pro rata per cent for each signatory state: Each signatory state total of accident and
health premiums will be divided by the Grand total from Paragraph B.3. above to arrive at a pro
rata percent for each state.

     B.5. Pro Rata Allocation of Monetary Penalty due each state: To arrive at the Pro Rata
Allocation of Monetary Penalty due each Signatory Regulator state, the pro rata percent derived in
Paragraph B.4. above will be multiplied by the Grand Total for all states derived in B.3 above.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 24

 

ATTACHMENT C

STANDARDS FOR PERFORMANCE MEASUREMENT

     The first column, “Required Action #”, is used for ease of reference to the particular
Required Action Items in the Multi-State Market Conduct Examination of The MEGA Life and Health
Insurance Company, Mid-West National Life Insurance Company of Tennessee, and The Chesapeake Life
Insurance Company.

     The second column, entitled “Performance Standard”, sets forth the Performance Standards
developed by the Companies and agreed to by the Monitoring Regulators.

     The third column entitled “Tolerance” sets forth Tolerances described in the Regulatory
Settlement Agreement.

     Compliance with the standards contained herein constitutes full compliance with the
requirements imposed by the Agreement, as set forth in Section E.2.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 25

 

	 	 	 	 	 	 	 	 	 
	          Required Action	 	Performance Standard	 	Tolerance
	1. HEALTH INSURANCE AGENT TRAINING

	 
	 	 	 	 	 	 	 	 
		 	Standard 1.A.1	 	 
	 
	The Companies must modify their agency
program to expand
and improve agent
training,
particularly for
new agents, by
expanding theirs
training program to
include industry
knowledge, ethics,
product
presentation,
proper disclosures,
consistent delivery
across agencies,
and a robust
structure, among

	 	 	 	•
	 	The Companies have a written curriculum for new agents, which is
standardized so that each agent receives the training as defined in 1.A.2.
	 	Pass/Fail
	other enhancements;	 	Standard 1.A.2	 	 
	 
	 	 	 	 	 	 	 	 
		 	Standard curriculum for new agent training includes:	 	 
	To ensure agents and consumers
thoroughly
understand the
products they are
selling/buying and
appropriate
disclosures are
made at the point
of sale and in
follow-up contacts,
the Company must:
	 	 	 	•
•
•
•
•

•
•

•

	 	Information specific to applicable states or
U.S. territories;
Overview of the health insurance
industry;
Basics of health insurance policies;
Sales
presentation standards;
    Fundamentals of health insurance
policy
 provisions, including statements
of coverage,
 deductibles, co-pays, co-insurance, exclusions,
 and
cancellation;
Business Ethics;
Legal requirements regarding
disclosures,
 application completion, and
signatures; and
Legal and ethical requirements for truth and
fair
 dealing in sales of
health insurance.	 	 
	

1.A: Strengthen
the training
program for new
agents by including
health insurance
industry
information.

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Pass/Fail
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	

IN THE MATTER OF THE MARKET CONDUCT
EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 26

 

	 	 	 	 	 
	          Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 1.A.3.	 	 
	 
	 	 	 	 
	 

	 	The Companies do not appoint recruits as agents until they have passed the
Companies’ Training, Testing, Audit, Complaints, and Compliance (“TTACC”)
testing and met state licensing requirements. TTACC, as used in these Standards
for Performance Measurement, means the program as described in the Report and in
the Companies’ Response to the Report, as well as subsequent modifications made
to meet the provisions of this Agreement.
	 	Pass/Fail
	 
	 	 	 	 
	1.B: Provide agent
training more
frequently based
upon average agent
retention
statistics, such as
every three to six
months rather than
annually

	 	Standard 1.B.1

The Companies offer product training three times per calendar year at each
division office.
	 	Pass/Fail
	 

	 	Standard 1.B.2 

For the remainder of the calendar year in which an agent initially passes TTACC
testing, each agent is required to attend up to three additional training
sessions to be chosen from those offered by his or her Division Office.
	 	 10%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 27

 

	 	 	 	 	 
	          Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 1.B.3 

For every full calendar year after the year in which an agent initially passes
TTACC testing, the Companies require all agents to attend at least three
training sessions including at least one product training and one
compliance/ethics training annually.
	 	 10%
	 
	 	 	 	 
	1.C: Develop a
standard but
progressive
curriculum for
agents based upon
experience level
with the Company.

	 	Standard 1.C.1

The Companies provide access to an on-line manual for each state and product set
which agents are able to review at any time. The Companies provide timely
communications regarding changes in underwriting processes, product
clarifications, compliance updates, changes in forms and process to the division
offices.
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 1.C.2

The Companies require all agents to pass annual testing (based on the agent’s
TTACC anniversary date) in order to retain their appointments. This testing is
updated to reflect new information implemented since their most recent TTACC
testing.
	 	 10%
	 
	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 
	1.D: Strengthen the
training  program for existing agents,
particularly product
information, ethics and point of sale
presentations.	 	Standard 1.D.1
	 	 
	 
		 	The agent training curriculum includes:	 	 
		 	 	 	•	 	Business Ethics and Legal Requirements;	 	 
	 	 	 	 	 	o
	 	Legal requirements regarding disclosures, application
completion, and signatures;
	 	Pass/Fail
	

	 	 	 	 	 	o
	 	Legal and ethical requirements for truth and fair dealing in sales of health
insurance;	 	 
		 	 	 	•	 	Point of Sale (“POS”) Training including the following topics:	 	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 28

 

	 	 	 	 	 	 	 	 	 	 	 
	          Required Action	 	Performance Standard	 	Tolerance
	 

	 	 	 	 	 	o
	 	Complete and accurate information about the Companies’ product portfolio and
variety of riders;	 	 
	 

	 	 	 	 	 	o
	 	Current presentation aids (brochures, visual aids, scripts, etc.) for use in
educating Customers about and selling the Companies’ products;	 	 
	 

	 	 	 	 	 	o
	 	Appropriate techniques for POS presentations to special populations (including
the elderly, disabled, and non- or limited-English speaking persons);	 	 
	 

	 	 	 	 	 	o
	 	Tools available to educate Customers about their products and resources
available for assisting Customers with questions or problems which the agents
are unable to resolve, including the local state insurance department; and	 	 
	 

	 	 	 	 	 	o
	 	How to contact the Companies’ Agent Outreach department, a subset of the
Companies’ Customer Service representatives dedicated to agent support.	 	 
	 	 	 	 	•	 	New products and the related POS materials	 	 
	 

	 	 	 	 	 	o
	 	Information on how a claim would be processed for each product, including	 	 
	 

	 	 	 	 	 	 	 	     §      Limitations of products; and	 	 
	 

	 	 	 	 	 	 	 	     §      Stop-loss for Customers, where applicable.	 	 
	 	 	 	 	•	 	Complaint-handling procedures and support	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Standard 1.D.2
	 	 
	 
	 	 	The training program is reviewed at least annually and updated as needed.
Updates are made more frequently if applicable laws or the Companies’ procedures
require.	 	Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 29

 

	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 1.D.3	 	 
	 
	 	 	 	 
	 

	 	Agents are required to pass testing on each product before the agents may sell
that product.
	 	 10%
	 
	 	 	 	 
	 

	 	Standard 1.D.4	 	 
	 
	 	 	 	 
	 

	 	Inappropriately submitted applications are rejected and not underwritten.
	 	 10%
	 
	 	 	 	 
	 

	 	Standard 1.D.5	 	 
	 
	 	 	 	 
	 

	 	Trainees are asked to provide written or on-line evaluations of the training
programs and the trainer(s).
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 1.D.6	 	 
	 
	 	 	 	 
	 

	 	The Companies have a Code of Ethics and Professional Responsibility for agents.
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 1.D.7	 	 
	 
	 	 	 	 
	 

	 	As part of the agent appointment process, and thereafter each calendar year, the
Companies require that all agents acknowledge in writing or electronically that
they have read and agreed to abide by the Code of Ethics and Professional
Responsibility for agents.
	 	 10%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 30

 

	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	1.E: Develop
centralized
standards and
controls to manage
agents and train
agency management
in appropriate
controls and
monitoring of agent
and agency
activities. Develop
tools and metrics
for measuring the
effectiveness of
training (e.g.
reduction of
complaints,
reductions un
cancellations,
etc.)

	 	Standard 1.E.1

Annually, the Companies’ Compliance, Sales, Training, and Operations departments
evaluate the Companies’ agent training program for course content (including new
legislative or regulatory mandates), delivery and testing medium, and other
feedback or information available to the Companies (including from trainee
evaluations, complaints, field management, or Customer surveys); and thereafter,
recommends improvements to the program.
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 1.E.2	 	 
	 
	 	 	 	 
	 

	 	A team of Senior management, including the Companies’ Sales; Training; and
Operations departments and the Chief Compliance Officer (“CCO”) meet quarterly
to discuss agent testing results and other feedback available to the Companies
(including complaints or Customer survey information). This team recommends
changes as a result of the feedback.
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 1.E.3	 	 
	 
	 	 	 	 
	 

	 	Appropriate departments within the Companies assess the recommendations from
Senior management, provide feedback to Senior management, and implement the
recommendations, as appropriate.
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 1.E.4	 	 
	 
	 	 	 	 
	 

	 	The Companies require that Field Leaders pass TTACC testing at a 90% level,
holding them to a higher standard than the rest of the field force.
	 	Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 31

 

	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 1.E.5	 	 
	 
	 	 	 	 
	 

	 	The Companies require that trainers, including Field Leaders involved in
training, are instructed on how to train by August 1, 2009. The Companies
provide constructive written feedback to the trainers. Thereafter, Companies
require that new Field Leaders who are involved in training are instructed on
how to train within 60 days of their promotion to Field Leader.
	 	 10%
	 
	 	 	 	 
	 

	 	Standard 1.E.6	 	 
	 
	 	 	 	 
	 

	 	The Companies have a plan and a schedule to provide annual refresher instruction
on training techniques.
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 1.E.7	 	 
	 
	 	 	 	 
	 

	 	Each calendar year, the Companies require that trainers, including Field Leaders
involved in training, receive refresher instruction on training techniques.
	 	 10%
	 
	 	 	 	 
	1.F: Develop
additional methods
to help consumers
have a better
understanding of
the Companies’
products during the
sales process.

	 	Standard 1.F.1

The Companies review Customer complaints and Benefit Confirmation Program
(“BCP”) data at least quarterly to determine whether Customers understand the
provisions of their policies, and to recommend necessary changes to agent
training and point of sale materials.
	 	Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 32

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	 	 	Standard 1.F.2	 	 
	 
	 	 	 	 	 	 
	 	 	For currently marketed products, the Companies implement revisions to agent
training, Customer care representative training, and point of sale materials
within 90 days of the recommendations discussed in Standard 1.F.1. Customer care
representatives are the Companies’ home office staff who communicate with or
otherwise respond to communications received from Customers.	 	 
	 
	 	 	 	 	 	 
	 	 	In those instances where the revisions require regulatory or other external
approval, system modifications or involve other dependencies:	 	Pass/Fail
	 

	 	•
	 	The Companies have submitted a draft implementation program to the
Monitoring Regulators regarding a reasonable timetable to implement these revisions.	 	 
	 
	 	 	 	 	 	 
	 

	 	•
	 	The Companies have used all reasonable efforts to achieve agreement with
the Monitoring Regulators on an implementation schedule.
	 	

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY REGULATORY SETTLEMENT AGREEMENT

Page 33

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 1.F.3

For non-currently marketed products, the Companies revise
Customer care representative training within 90 days of the
recommendations discussed in Standard 1.F.1.

In those instances where the revisions require regulatory or
other external approval, systems modifications or involve
other dependencies:
	 	Pass/Fail

	 

	 	
	 	 	 	 
	 

	 	   •  The Companies have submitted a draft
implementation
program to the Monitoring Regulators regarding a reasonable
timetable to implement these revisions.
	 	 	 	 
	 

	 	   •  The Companies have used all reasonable
efforts to
achieve agreement with the Monitoring Regulators on an
implementation schedule.
	 	 	 	 
	 
	 	 	 	 	 	 
	1.G: Train BCP
Staff to be
assertive in
reviewing coverage
with clients to
ensure more calls
are successfully
completed.

	 	Standard 1.G.1

The Companies utilize a standard, written BCP training program
with content that is consistent with agent training on
currently marketed products and new products.
	 	Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 1.G.2

By August 1, 2008, the Companies train BCP representatives
regarding use of listening and questioning techniques in order
to assess the Customer’s level of understanding regarding
currently marketed products and their features, and have
incorporated listening and questioning techniques into new
hire and annual refresher training.

	 	 	10	%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 34

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	2. AGENT OVERSIGHT

	 
	 	 	 	 	 	 
	To provide adequate
monitoring of
agents and agent
activities, the
Company must:

2.A: Implement
quality assurance
procedures over
agent activities
including
monitoring
procedures and
periodic audits.

	 	Standard 2.A.1

The Companies have trained field leadership on the use and
functionality of the Agency Management System (AMS) by August
1, 2009.

   •  Thereafter, Companies require
supplemental training
based on upgrades to AMS within 60 days of the upgrade
installation.

   •  The Companies require promoted
Field Leaders to
complete training within 60 days of promotion.

	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 2.A.2

The Companies utilize AMS, including:
	 	Pass/Fail

	 

	 	

   •  Use of the system to monitor
agent performance based
on the severity and volume of each agent’s complaints; and
	 	 	 	 
	 

	 	   •  Use of the system by Field Leaders
to monitor, mentor,
and provide additional coaching to the agents.
	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Standard 2.A.3

The Companies utilize AMS data to review and act on
inappropriate sales practices via the Sales Practices Review
Team (“SPRT”) or a successor committee which meets at least 10
times per year.
	 	Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 2.A.4

Proven serious agent misconduct is dealt with expeditiously
when known to the Companies.
	 	Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 35

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	2.B: Enhance the
effectiveness of
agent training by
requiring monitored
testing and
monitoring the
delivery of the
training
presentations by
field managers.

	 	Standard 2.B.1

The Companies test their agents in a monitored and proctored
environment in field offices under the supervision of the
Division Leader or designee to ensure that no notes, brochures
or other reference materials are available to the agent. The
test is conducted on-line and is initiated by the monitoring
Division Leader or designee.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 2.B.2

The testing program is designed to demonstrate the agents’
ability to:

   •  Answer Customers’ most
frequently asked questions;

	 	

	 

	 	   •  Explain what is covered by the policy;
	 	 	 	 
	 

	 	   •  Explain what is excluded from the policy;
	 	 		 
	 

	 	   •  Outline the types of expenses
the Customer can expect
to pay out of pocket (deductible, co-insurance, co-pays,
etc.);
	 	 		 
	 

	 	   •  Describe the Customer population(s)
for whom this
product is appropriate;
	 	 	Pass/Fail	 
	 

	 	   •  Describe the Customer population(s)
for whom this
product is NOT appropriate;
	 	 	 	 
	 

	 	   •  Describe the relationship
between the Companies and
the association and whether association membership is required
for purchase or maintenance of coverage under the product; and
	 	 	 	 
	 

	 	   •  Know the Companies’ requirements
for a point-of-sale
presentation of this product (for example, leaving a detailed
product brochure with the Customer, use of the association
disclosure form).
	 	 	 	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 36

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 2.B.3

The Companies conduct annual in-person reviews of the Field
Leaders’ presentations of health insurance agent training as
part of the TTACC audit program.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	2.C: Implement a
plan to monitor
agents’ actions
using tools such as
comprehensive field
audits, phone
interviews with
recent customers,
secret shoppers and
trending of agent
and agency related
information such as
complaint
statistics,
cancellations,
product upgrades
and the like.

	 	Standard 2.C.1

As part of the BCP program, the Companies attempt to contact
all new medical product Customers within 90 days of the sale
regarding their coverage and their POS experience.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 2.C.2

When issues relating to agent conduct are identified through
the BCP calls, those agent issues are investigated by the
Companies.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 2.C.3

The Companies use AMS to monitor agent actions in the specific
areas of

	 	

Pass/Fail

	 

	 	   •  Business submitted;
	 	 	 	 
	 

	 	   •  Complaints activity; and
	 	 	 	 
	 

	 	   •  Taken rate (percentage of
declines, incompletes, and
cancellations of total business submitted).
	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Standard 2.C.4

Procedures are in place for appropriate response to problems
identified through the agent monitoring program, including
retraining, discipline, or termination of the agent or field
leadership, as appropriate.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 37

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 2.C.5

As problems are identified through the agent monitoring
program, they are resolved, as appropriate, including
retraining, discipline, or termination of the agent or field
leadership.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 2.C.6

The Companies review logged complaints quarterly to determine
trends such as misunderstandings about product features,
processing concerns, benefit dissatisfaction, and failure of
agents to provide sufficient information to Customers.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 2.C.7

If negative indications or trends are identified as the result
of the quarterly review of logged complaints or trends, the
Companies take action to resolve the indicated problem(s).
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 2.C.8

The Companies review quarterly the results of Customer surveys
and recommend and implement changes to training, products, or
processes as appropriate.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	2.D: Provide
additional point of
sale materials such
as scripts and
checklists for
agents’ use and
ensure that all
materials include
appropriate
disclosures.

	 	Standard 2.D.1

The Companies’ Compliance, Product Development and Sales
departments have developed POS materials and disclosures to
support products currently offered to Customers.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 38

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	 

	 	Standard 2.D.2

POS materials are reviewed at least annually to assess whether
the materials continue to be appropriate and whether they
include appropriate disclosures.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 2.D.3

The Companies document any revisions made to POS materials, as
well as whether POS materials have been discontinued.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	2.E: Investigate
all agents with
unusual trend
statistics and all
complaints
regarding claims
alleging that
agents
misrepresented the
product at the
point of sale. Any
agent found to be
misrepresenting the
products at the
point of sale
should be
retrained,
disciplined or
dismissed as
appropriate for the
circumstances.

	 	Standard 2.E.1

The Companies utilize AMS data to review and act on
inappropriate sales practices via SPRT or a successor
committee which meets at least 10 times per year.
	 	

Pass/Fail

	 
	 	 	 	 	 
	 	Standard 2.E.2

Proven serious agent misconduct is dealt with expeditiously
when known to the Companies.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 2.E.3

All complaints clearly alleging agent misrepresentation of the
product at the point of sale are investigated.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	 

	 	Standard 2.E.4

Those agents investigated per Standard 2.E.2 and 2.E.3, and
found to be misrepresenting products at the point of sale are
retrained or disciplined as appropriate up to, and including,
dismissal.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 39

 

	 	 	 	 	 	 	 
	Required Action	 	Performance Standard	 	Tolerance
	2.F: Hold field
management, such as
regional managers
and above,
accountable for the
actions of each
agent under their
supervision. Field
management
performance
assessment and
overall
compensation should
contain a component
that is tied to
such performance
measures as the
number of
complaints received
about sales
practices in the
manager’s
territory, the
number of
cancellations and
persistency of
business written by
the manager and his
agents, and other
actions that may be
indicators of the
overall performance
of that manager’s
territory.
Incentives should also be developed
which reward
regional managers
who demonstrate
effective
accountability and
management of their
agents with respect
to compliance
requirements and
performance.

	 	Standard 2.F.1

The Companies annually evaluate Field Leaders based upon TTACC
audit results and the performance of agents within their
respective territories. Performance measurements include:
	 	

	 	   •  Complaint activity;

   •  Taken rates; and,

   •  Risk associated with agent debt.

These measurement standards identify Field Leaders requiring
additional oversight, as well as those demonstrating effective
accountability and performance.	 	 	Pass/Fail	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 40

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	3. CLAIMS HANDLING

	 	 	 	 	 	 	 
	 

	 	Standard 3.A.1	 	 	 	 
	3.A: The Company must
identify and re-adjudicate
any claims for which
diagnosis and CPT codes were
altered because of the risk
that the claim may not have
been paid correctly as a
result of the code change.
The Company must cease to
alter diagnosis and CPT
codes submitted by providers
on claims.

	 	

The Companies have
identified claims in the
claims sample selected as
part of the Multi-State exam
for which diagnosis and CPT
codes were refined by the
Companies which could have
resulted in improper claims
adjudication outcomes. These
claims were assessed to
determine whether any
improper claims
adjudications outcomes
resulted from the refinement
of diagnosis and CPT codes,
and were re-adjudicated
based on this assessment, as
appropriate.

	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 3.A.2

The Companies do not allow
diagnosis or CPT codes
submitted by providers on
claims to be altered by
Company personnel.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 41

 

	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	3.B: The Company must
make changes to the
claims adjudication
system that will allow
them to enter an entire
claim into their system
as a single claim.

	 	Standard 3.B.1

For business not yet set up on or migrated to a new claims
adjudication system as described in Standard 3.B.2, the
Companies’ claims adjudication system allows an entire claim to
be tracked and counted as a single claim unit for each bill
submitted and processed in the system, and the Companies require
that each claim is handled under a single claim identifier
(“film number”).
	 	

Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 3.B.2

As of 12/31/2009, the Companies enter claims for any products
set up on a new claims adjudication system as a unique single
claim unit for each bill submitted and process in the system
under a single claim number.
	 	

Pass/Fail
	 
	 	 	 	 
	3.C: All claims must be
adjudicated in a timely
manner as required by
statute or rule in the
appropriate jurisdiction
based on claim
submission location. All
delayed claims letters
must include a reason
for the delay. The
Company’s practice of
pending claims while
waiting for information
on other claims must
cease.

	 	Standard 3.C.1

All claims are adjudicated in a timely manner as required by
statute or rule in the appropriate jurisdiction (including the
tolerances provided in those statutes or rules) based upon claim
submission location. Where no tolerance standards are
promulgated in a particular jurisdiction, the NAIC Market
Regulation Handbook tolerance standard of 7% applies.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 42

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	 

	 	Standard 3.C.2

All delayed claim letters include the reason(s) for the delay
and information needed to complete processing.
	 	 	

 7	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 3.C.3

The Companies do not allow personnel to pend claims while
waiting for information on other unrelated claims. Each claim
submission is handled separately.
	 	 	

7	

%
	 
	 	 	 	 	 	 
	3.D: All Explanation of
Benefit forms must
include the deductible
information pertinent to
the claim.

	 	Standard 3.D.1

All EOB forms include the deductible information pertinent to
the claim.
	 	 	

7	

%
	 
	 	 	 	 	 	 
	3.E: The Company must
perform independent
routine and ongoing
audits of claims to
determine adherence with
the Claims Procedures
Manual and applicable
laws and regulations.
The results of such
audits must be analyzed
by compliance personnel
to identify trends and
root causes of claim
mishandling, areas for
training emphasis, and
problem claim adjusters.
Audits must result in
action by the Company to
correct those areas
found to be problematic
or deficient.

	 	Standard 3.E.1

The Companies perform routine and ongoing audits of claims to
determine adherence with the Claims Procedures Manual and
applicable laws and regulations. These audits are conducted by
claims department personnel independent of the claims
adjudication unit.

  •   The auditing program is such that each claims handler
has at least one of his or her claims audited monthly.

	 	 	

10	

%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 43

 

	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	 

	 	Standard 3.E.2

The Companies’ claims department audits are consistent across
Companies and the auditing program is evaluated and updated on
an ongoing basis and at least annually.
	 	

Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 3.E.3

The results of the audits are analyzed quarterly by appropriate
supervisory or senior personnel to identify trends and root
causes of claim mishandling, areas for training emphasis, and
problem claims adjusters.	 	 
	 
	 	 	 	 
	 

	 	The Companies can demonstrate that procedures are in place and
followed for appropriate response to problems identified through
the claims handling audit program, including retraining,
discipline, or dismissal of claims handlers, as appropriate. 

The Companies can demonstrate follow-through on any identified
need for change from identification to action and resolution.
Such follow-through includes assessment of each change.
	 	Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 3.E.4

The claims department’s auditing program includes random
selection and auditing of paid, pending and denied claims. The
number of claims sampled is consistent with the requirements of
the NAIC Market Regulation Handbook.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 44

 

	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	4. CLAIMS PROCEDURES MANUAL

	 
	 	 	 	 
	The
Company will develop and maintain a Claims Procedures Manual.
	 	Standard 4.1

	 	 
	
	 	The Companies maintain a current Claims Procedures Manual.	 	Pass/Fail
	 
	 	 	 	 
	 
	 	Standard 4.2

	 	 
	 
	 	The Companies are able to
demonstrate that the Claims Procedures Manual is evaluated and
updated as appropriate, and at a minimum annually.	 	 
	 
	 		 	Pass/Fail
	 
	 	 	 	 
	5. IDENTIFICATION OF COMPANY

	 
	 	 	 	 
	5.A:
All claims should be
adjudicated under the Company in which the claim is being made.
	 	Standard 5.A.1

	 	 
	
	 	All claims are adjudicated under
the Company in which the claim is being made.	 	7%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 45

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	5.B: Anytime a claim is
denied, appropriate
notification must be
sent.

	 	Standard 5.B.1

Each Customer is notified any time a claim is denied. This
includes situations where a Customer has coverage under more
than one of the Companies, and a Company believes that the
Customer’s claim may more appropriately or successfully be made
to another of the Companies. In that situation, the Companies
ensure that this information is clearly explained to the
Customer and correctly documented by the Company (or Companies)
to which the claim is being made.
	 	 	

7	

%
	 
	 	 	 	 	 	 
	5.C: All claims must be
documented correctly by
being filed with the
Company in which the
claim is being made.

	 	Standard 5.C.1

The Companies do not allow Company personnel to process a claim
under a different company or policy than that under which the
claim has been made without direct, clear explanation to the
Customer and compliance with the above requirements.
	 	 	

7	

%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 46

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	 

	 	Standard 5.C.2

Documentation in each Company’s file is such that a reviewer can
determine from the documentation:	 	 	 	 
	 

	 	  •   The actions taken by the Company with regard to a claim;
	 	 	 	 
	 

	 	  •   The status of the claim related to that Company; and
	 	 	 	 
	 

	 	  •   If a Company has denied and closed a claim because
coverage exists under the Customer’s policy with another of the
Companies, a reviewer can tell from the first company’s
documentation which Company’s records to search to find
subsequent developments on the claim.

	 	 	7	%
	 
	 	 	 	 	 	 
	6. TRANSPARENT RELATIONSHIPS WITH ASSOCIATIONS

	 
	 	 	 	 	 	 
	The Company must
provide sufficient
transparency
information based on
the complexity of the
Company’s relationship
with the associations
and its own affiliates.
This includes:

	 	Standard 6.A.1

The Companies require that insurance payments and association
payments are received as two separate payments.	 	 	 	 
	 
	 	 	 	 	 	 
	6.A: The Company must
change its procedures so
that the insurance
payments and the
association
payments are received as
two separate payments.
The Company must
identify states in which
the definition of
premium includes all
amounts collected by the
insurer, and must advise
those states of the
possibility that the
Company may need to
amend premium tax
filings. The Company
must work with the
affected regulatory
jurisdictions to correct
prior year filing
errors.

	 	 	 	 	10	%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 47

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	 

	 	Standard 6.A.2

The Companies are able to demonstrate that they have identified
each state in which the definition of premium includes all
amounts collected by the insurer and advised those states
whether the Companies need to amend their premium tax filings.
The Companies can demonstrate follow-through with each
applicable state.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	6.B: The Company must
disclose, with emphasis
and clarity, to
consumers and
policyholders the
relationship between the
Company and any
associations it uses for
marketing products.

	 	Standard 6.B.1

The Companies disclose to Customers the relationship between
each Company and each association the Company utilizes for
marketing products.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	6.C: The Company needs
to clearly disclose to
regulators how the
Policy Fees and the
association New Member
Admin Fees are allocated
between the insurance
company and the
associations. This will
assist the Company in
providing to the
regulators an accurate
accounting for premium
tax purposes and for the
proper accounting for
premium refunds to
insureds.

	 	Standard 6.C.1

The Companies record as revenue the policy fees collected on
which they correspondingly pay premium tax. The Companies do not
record as revenue fees payable to the association.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 6.C.2

The Companies properly calculate and account for premium refunds
to Customers according to applicable Company policies, laws,
rules, and regulations.
	 	 	

10	

%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 48

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	6.D: The Company needs
to remain vigilant that
its relationships with
all entities are cost
effective and do not
adversely impact the
cost of insurance to
consumers/policyholders.

	 	Standard 6.D.1

The Companies evaluate the associations through which they sell
products on an annual basis to assess whether the reputation of
the association , the fees charged and the services offered make
it an appropriate avenue for selling the Companies’ products.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	7. COMPLAINTS AND GRIEVANCES

	 
	 	 	 	 	 	 
	For complaints and
grievances to be handled
appropriately, the
Company must take the
following actions:

	 	Standard 7.A.1

All complaints, written and verbal, are recorded and logged in
compliance with applicable state laws and the Companies’
procedures.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	7.A: All complaints
must be recorded and
logged correctly in
compliance with states’
laws and the Company’s
stated procedure.
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	7.B: The Company must
ensure that all issues
raised in a
complaint/grievance are
acknowledged and
investigated,
finalized/disposed of in
accordance with rules
and regulations,
applicable statutes and
contract language.

	 	Standard 7.B.1

All issues raised in a complaint or grievance, written or
verbal, are acknowledged, investigated and finalized / disposed
of according to applicable contract language, statutes, rules
and regulations.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	7.C: The Company must
comply with the
timeliness of response
and timeliness of
resolution of each
complaint/grievance as
required by applicable
statutes, rules and
regulations.

	 	Standard 7.C.1

All complaints and grievances, written or verbal, are handled in
compliance with applicable statutes, rules, and regulations for
timely responses and resolutions.
	 	 	

10	

%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 49

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	7.D: The Company must
identify those
jurisdictions that have
statutes or regulations
defining a grievance.

	 	Standard 7.D.1

The Companies have identified those jurisdictions that have
statutes or regulations defining a “grievance” and maintain
state-specific procedures for staff when handling grievances.

	 	

Pass/Fail

	  1.   The
Company must train
appropriate
personnel to
identify
grievances upon
receipt.

	 	 	 	 	 	 
	  2.   The
Company must develop
procedures for
staff to follow
when handling
grievances. These
procedures must be
state specific.

	 	 	 	 	 	 
	 

	 	Standard 7.D.2

The Companies can demonstrate that all appropriate staff is
trained to identify grievances upon receipt.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 7.D.3

The Companies have written procedures in place for all
appropriate staff to follow when handling grievances. These
procedures are consistent with state-specific statutes, rules,
and regulations governing grievances.
	 	

Pass/Fail

	 
	 	 	 	 	 	 
	7.E: The Company must
request an agent
statement for all
complaints involving an
agent’s actions.

	 	Standard 7.E.1

The Companies’ procedures require that an agent’s statement must
be requested for all complaints and grievances involving an
agent’s actions.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	7.F: The Company must
improve its complaint
handling controls and
establish strong
oversight of the
complaint handling
process by:

	 	Standard 7.F.1

The Companies have prepared a report to regulators outlining
their complaint-related business practice reforms. The report
includes documentation to evidence and support the adequacy of
such reforms.
	 	

Pass/Fail

	
   
1.   
Preparation of a report
to regulators which
outlines the
complaint-related
business practice
reforms the
Company has
implemented to
date
	 	 	 	 	 	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 50

 

	 	 	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	
which address
the many concerns
expressed in
complaints.
Included with the
report should be
documentation to
evidence and
support the
adequacy of such
reforms. This
report can be used
by regulators in
developing a work
plan for a
follow-up
examination.

	 	Standard 7.F.2

The Complaint Action Team (or successor committee) maintains a
tracking log for identified issues. The Companies have
established procedures to ensure that there is ownership and
accountability and procedures to monitor and ensure appropriate
follow-through.
	 	

Pass/Fail

	   2.   Creation
of a tracking log for
issues forwarded
to the Complaint
Action Team and
establishing a
procedure to
ensure that there
is ownership and
accountability for
the process.

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	8. CANCELLATION, NON-RENEWAL AND DISCONTINUANCE NOTICES

	 
	 	 	 	 	 	 
	Cancellation,
non-renewal and
discontinuance notices
must be handled
consistently for all
policies and must comply
with policy provisions
and state laws. This
includes information
about the availability
of a grace period
provided to the insured
and other parties to the
contract.

	 	Standard 8.1

Cancellation, non-renewal and discontinuance notices are handled
consistently for all policies and payment methods.

	 	 	

10	

%
	 

	 	Standard 8.2

The Companies’ practices regarding cancellation, non-renewal and
discontinuance notices are compliant with policy provisions and
state laws.
	 	 	

10	

%
	 
	 	 	 	 	 	 
	 

	 	Standard 8.3

Notification about the availability of a grace period for
payment of premiums is consistent across all certificate
holders.
	 	 	

10	

%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 51

 

	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	9. COMPLIANCE PROGRAM

	 
	 	 	 	 
	The Company must
centralize the
compliance program to
promote consistency in
all business units. The
Company’s adherence to
its Compliance Plan and
compliance program
enhancements must be
independently evaluated
at periodic intervals
and should be
re-examined in the next
12 to 18 months. The
Company must inform
regulators on a timely
and periodic basis
concerning the program’s
enhancements and changes
to its compliance
procedures.

	 	Standard 9.1

The Companies’ Chief Compliance Officer manages a team of
professionals which is charged with the responsibility for
providing compliance guidance to the managers, employees and
agents of the Companies, including the following:

  •   Research and communicate regarding new laws and
regulations, including mandates, applicable to the business of
the Companies;

  •   Participate as an advisor to the committees and work
groups throughout the Companies;

  •   Develop internal policies and procedures when
appropriate and maintain them as necessary to comply with
current regulatory requirements;

  •   Advise Senior Management regarding compliance risks 

The Compliance team will have oversight responsibilities for all
compliance related activities throughout the Companies,
including:
	 	 
	 
	 

	 	
  •   Oversee a complaints unit to monitor timely and thorough
responses and follow through on common issues or trends;
	 	 
	 

	 	  •   Oversee a special investigations unit regarding fraud,
waste, and abuse;
	 	 
	 

	 	  •   Oversee market conduct examination activities;
	 	 

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 52

 

	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	 

	 	
  •   Serve as Compliance liaison to external regulatory
bodies; and
	 	 
	 

	 	  •   oversee advertising.
	 	 
	 
	 	 	 	 
	 

	 	Standard 9.2

The Companies’ compliance program is judged by the Standards for
Performance Measurement as set forth in this Attachment C and
has been independently evaluated at periodic intervals.
	 	

Pass/Fail
	 
	 	 	 	 
	 

	 	Standard 9.3

The Companies inform regulators concerning the program
enhancements and changes to their compliance procedures via the
semi-annual reports outlined in the Regulatory Settlement
Agreement.
	 	

Pass/Fail
	 
	 	 	 	 
	10. SEPARATE FINANCIAL INFORMATION FOR PDA AND SDA

	 
	 	 	 	 
	The Company should
prepare separate
financial information
of PDA and SDA on an
annual basis and have
it available to
domestic regulators
upon request.

	 	Standard 10.1

Financial information for HealthMarkets’ wholly-owned
subsidiaries Performance Driven Awards, Inc. (“PDA”) and Success
Driven Awards, Inc. (“SDA”) is prepared, separate from the
parent entity, and is available to domestic regulators upon
request.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 53

 

	 	 	 	 	 
	Required Action	 	Standard	 	Tolerance
	11. ACCOUNTING SUPPORT FOR TREATMENT OF AGENTS’ STOCK BENEFIT MATCH

	 
	 	 	 	 
	The Company should
provide to regulators
authoritative accounting
support for its
treatment of the agent’s
stock benefit match.

	 	Standard 11.1

SDA and PDA, which are non-owned affiliates of the Companies,
account for the stock matching benefit program. The accounting
for the stock matching benefit paid to agents and field service
representatives for the respective associations under the agent
stock plan complies with generally accepted accounting
principles.
	 	

Pass/Fail
	 
	 	 	 	 
	12. PROVIDING REQUESTED COPY OF OUTSIDE CONSULTING REPORT

	 
	 	 	 	 
	The Company must
provide a copy of the
consultant’s report or
an overview of the
report for review by
the regulators.

	 	Standard 12.1

The Companies have provided the Examiners with an overview of
the outside consultant’s report.
	 	

Pass/Fail
	 
	 	 	 	 
	13. REPORT TO REGULATORS OUTLINING ALL CHANGES

	 
	 	 	 	 
	The Company must prepare
a report to regulators
outlining precisely by
examination area all
business reforms,
improvements and changes
to policies and
procedures implemented
through current date.

	 	Standard 13.1

The Companies have prepared the report to regulators outlining
changes, as requested.
	 	

Pass/Fail

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE
AND HEALTH INSURANCE COMPANY, MID-WEST NATIONAL LIFE INSURANCE
COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 54

 

ATTACHMENT D

Required Reports and Monitoring

1. Reports

     The Companies will provide semi-annual reports to the Commissioner of Washington State. These
semi-annual reports will be in the format demonstrated in the attached table, based directly upon
the Standards for Performance Measurement specified in Attachment C to this Agreement. In the third
column of the reports, the Companies will state whether the standard set forth in the second column
is met or not met. In the fourth column, “Comments”, the Companies will provide the evidence
supporting the conclusion that the standard is met. Where applicable, the Companies will indicate
dates where criteria was met, such as dates training was provided to the agent force or new
materials were implemented, and provide verifying documentation upon request of the Monitoring
Regulators. If the standard is not met, the Companies will set forth in the fourth column the
status of their work toward meeting the standard. This information will include expected dates for
completion of remaining work toward meeting the standard.

     The semi-annual reports will include attachments showing complete, jurisdiction-specific
summary results of all required monitoring. The results may be in the format in which they are
routinely used by the Companies, or another format as desired by the Companies, so long as the
format is understandable and useful to the Monitoring Regulators in evaluating the results. If a
majority of the Monitoring Regulators agree that the format in

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 55

 

which the monitoring results are presented is not understandable and useful, the Companies
will provide the results in a format which is mutually agreeable to the Companies and the
Monitoring Regulators.

  2. Report Due Dates

     The first report will be due the later of 90 days after the Effective Date of the Agreement or
August 14, 2008, whichever date is later, and will cover the period of January 1, 2008 through June
30, 2008. Thereafter, reports will be due as follows:

	 	 	 
		 	 
	Period Covered	 	Due Date
	July 1, 2008 through December 31, 2008

	 	February 14, 2009
	January 1, 2009 through June 30, 2009

	 	August 14, 2009
	July 1, 2009 through December 31, 2009

	 	February 14, 2010

  3. Report Format

     The reports submitted to the Monitoring States on the schedule described in Section 2 will be
in table form and will include the following:

	 	•	 	The Required Action as described and set forth in Attachment C of this
Agreement.
	 
	 	•	 	Each Performance Standard as set forth in Attachment C of this Agreement.
	 
	 	•	 	The Tolerance Level as set forth in Attachment C of this Agreement.
	 
	 	•	 	The Status of the each Performance Standard as set forth in Attachment C of
this Agreement.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 56

 

	 	•	 	Company Comments about the current status of the Performance Standard as set
forth in Attachment C of this Agreement.
	 
	 	•	 	A list of the Evidence to support the Status of the Performance Standard as set
forth in Attachment C of this Agreement.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 57

 

ATTACHMENT E

Penalty for Failure to Perform

     1. Definition: It is expected that the Companies will be in compliance with each of the
standards in the Standards for Performance Measurement (“SPM”) by the time of the follow-up
examination by the Monitoring Regulators set forth in Section G.4. of the Agreement. If, at that
time, the Monitoring Regulators find that the Companies have not fully met each of the standards
set forth in Attachment C, the Companies will pay the penalty to the Signatory Regulators as set
forth in Section E.2. of the Agreement as calculated on this Attachment E.

     2. Calculation of Penalty: The total possible penalty for failure to perform is $10,000,000
(Ten Million Dollars). The amount of the total possible penalty that is to be imposed will be
calculated by the Monitoring Regulators based on the following table. Each section of the SPM has
been assigned a weighted percentage of the total possible penalty that may be imposed for failure
to meet the standards of that section. The weighted percentages are as follows:

	 	 	 	 	 
	 	 	Weighted Percentage of
	Required Action	 	Penalty
	Agent Training
	 	 	25	%
	Agent Oversight
	 	 	25	%
	Claims Handling
	 	 	8	%
	Claims Procedures Manual
	 	 	8	%
	Identification of Company
	 	 	2	%
	Transparent Relationships with Associations
	 	 	10	%
	Complaints And Grievances
	 	 	10	%
	Cancellation, Non — Renewal And Discontinuance Notices
	 	 	2	%
	Compliance Program
	 	 	4	%
	Separate Financial Information For PDA & SDA
	 	 	2	%
	Accounting Support for Treatment of Agents’ Stock Benefit Match
	 	 	2	%
	Providing Requested Copy of Outside Consulting Report
	 	 	1	%
	Report to Regulators Outlining All Changes
	 	 	1	%

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 58

 

     (a) Failure to meet all of the standards in a section will result in imposition of the entire
weighted percentage of the penalty for that section. For example, failure to meet all of the
standards in the Agent Training section of the SPM will result in imposition of 25% of the penalty,
or $2,500,000 (Two Million, Five-Hundred Thousand Dollars). The penalty will not be reduced even if
some of the standards in the applicable section of the SPM are met. If all standards in the section
are met, none of the penalty assigned to that section will be imposed. If one or more standards are
not met, all of the penalty assigned to that section will be imposed.

     (b) The Monitoring Regulators will add all weighted percentages of penalty for each section of
the SPM, if any, that has not been fully met. This sum will be the total penalty for failure to
perform to be imposed. This sum will be payable to the Signatory Regulators by the Companies within
30 days after notification that the penalty for failure to perform is to be imposed.

     3. Pro Rata State Allocation of Penalty: The Pro Rata State Allocation of Penalty for
Failure to Perform will be calculated in the same manner as the Pro Rata State Allocation of
Monetary Penalty. That calculation is set forth in Attachment B to the Agreement. This means
that each Signatory Regulator will receive the same percentage of any imposed Penalty for
Failure to Perform that it received of the Monetary Penalty.

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 59

 

PROPOSED ATTACHMENT F

SAMPLE NOTICE TO BE MAILED TO INSUREDS BY COMPANY

Date

Name

Address

Policy/Certificate Number(s)

Dear Named Insured:

Thank you for choosing The MEGA Life and Health Insurance Company (MEGA) for your medical insurance
needs.

Have you ever had questions about your policy? Questions such as “Am I covered for doctor
visits?”, “Do I have coverage for emergency care?”, “Am I covered for hospital stays?” or “What is
my deductible?”

We have a new service that will help you better understand and get the most out of your coverage
with MEGA. We would like to answer any questions you may have regarding your coverage or, at your
request, explain your current coverage. We can also provide you with a copy of your
policy/certificate at your request.

A special customer service representative is ready to assist you from

8 a.m. to 5 p.m., Monday through Friday at (800) 527-2845.

You may also contact us by sending an email via www.megainsurance.com.

If you believe you have additional coverage needs or if you believe your coverage needs have
changed, we will be happy to explain the variety of coverages MEGA has to offer in your state. You
will not be referred to or contacted by an insurance agent unless you specifically request to have
one contact you.

You are also encouraged to visit our website, www.megainsurance.com, for further information about
MEGA and our products and services.

We appreciate your business and welcome the continued opportunity to assist you with your medical
insurance needs.

Sincerely,

IN THE MATTER OF THE MARKET CONDUCT EXAMINATION OF THE MEGA LIFE AND HEALTH INSURANCE COMPANY,
MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE, AND THE CHESAPEAKE LIFE INSURANCE COMPANY
REGULATORY SETTLEMENT AGREEMENT

Page 60exv4w30

Exhibit 4.30

FIRST INTERSTATE BANCSYSTEM, INC.

EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED

SECTION 1. PURPOSE

     The purpose of the First Interstate BancSystem, Inc. Employee Stock Purchase Plan (the “Plan”)
is to further the growth and development of First Interstate BancSystem, Inc., a Montana
corporation (the “Company”), by affording an opportunity for stock ownership to selected persons,
including the Savings and Profit Sharing Plan Trustee (as defined below).

SECTION 2. DEFINITIONS

     Unless otherwise indicated, the following terms when used herein shall have the following
meanings:

     a. “Affiliate” shall mean, with respect to any person or entity, a person or entity that
directly or indirectly through one or more intermediaries, controls, or is controlled by, or is
under common control with, such person or entity.

     b. “Board of Directors” shall mean the Board of Directors of the Company.

     c. “Code” shall mean the Internal Revenue Code of 1986, as amended.

     d. “Committee” shall have the meaning set forth in Section 4.1 hereof.

     e. “Common Stock” shall mean the Company’s no par value common stock, and any share or shares
of the Company’s capital stock hereafter issued or issuable in substitution for such shares.

     f. “Director” shall mean a member of the Board of Directors, a member of the board of
directors of any bank Subsidiary of the Company, and advisory directors of the Company or any such
Subsidiary.

     g. “Offer Letter” shall have the meaning set forth in Section 7.2 hereof.

     h. “Offering Period” shall have the meaning set forth in Section 7.6 hereof.

     i. “Participant” shall mean any person, including the Savings Plan Trustee, who is granted a
right to purchase Common Stock under the Plan; provided however, that such person shall be
considered a Participant only during a particular Offering Period, if and when designated by the
Board of Directors or Committee and will not be
considered a Participant in prior or subsequent Offering Periods unless designated as such by
the Board of Directors or Committee. “Participant” shall also mean the

 

 

personal representative of a Participant and any other person who acquires the right to purchase Common Stock by bequest or
inheritance.

     j. “Purchase Price” shall mean the Fair Market Value of the Common Stock as of the first day
of an Offering Period.

     k. “Fair Market Value” shall have the meaning set forth in Section 7.5 hereof.

     l. “Savings Plan Trustee” shall mean the person or entity acting as trustee from time to time
of the Company’s Savings and Profit Sharing Plan for Employees of First Interstate BancSystem,
Inc., 2006 Restatement.

     m. “Stock Sale” shall mean a sale of the Common Stock made by the Company or certain
Affiliates as determined by the Board of Directors or the Committee from time to time and in
accordance with the terms hereof.

     n. “Subsidiary” shall mean a subsidiary corporation of the Company as defined in
Section 424(f) of the Code.

SECTION
3. EFFECTIVE DATE

     The effective date of the Plan is May 1, 1998.

SECTION 4. ADMINISTRATION

     4.1 Administration. The Plan shall be administered by the Board of Directors or a
committee appointed by and serving at the pleasure of the Board of Directors, consisting of not
less than two Directors (the “Committee”). Subject to the foregoing, the number of Directors
comprising the Committee shall be determined from time to time by the Board of Directors and may
include the total number of Directors serving on the Board of Directors. Unless otherwise adopted
by resolution of the Board of Directors, the initial Committee shall consist of all members of the
Board of Directors. The Board of Directors may from time to time remove members from or add
members to the Committee, and vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. If the Common Stock becomes registered under Section 12 of the Securities
Exchange Act of 1934, as amended, the Committee shall be composed of Directors satisfying any
applicable requirements of Rule 16b-3 so as to take advantage of the maximum exemption thereunder.

     4.2 Committee Meetings and Actions. If appointed, the Committee shall hold meetings
at such times and places as it may determine. A majority of the members of the Committee shall
constitute a quorum, and the acts of the majority of the members
present at a meeting or a consent in writing signed by all members of the Committee shall be
the acts of the Committee and shall be final, binding and conclusive upon all persons, including
the Company, its Subsidiaries, its shareholders, and all persons

-2-

 

having any interest in Common Stock which may be or has been sold pursuant to the Plan.

     4.3 Powers of Committee. The Committee shall have the full and exclusive right to
administer Stock Sales and to determine the terms and conditions of all such Stock Sales under the
Plan and to prescribe, amend and rescind rules and regulations for administration of the Plan. The
Committee shall also select those Directors, officers, employees or other persons who will be
eligible to purchase Common Stock in any Stock Sale, and shall determine the amounts of Common
Stock which each such Participant may purchase in any given Stock Sale, or in the aggregate. In
administering Stock Sales, the Committee shall take into consideration the contribution the
Participant has made or may make to the success of the Company or its Subsidiaries and such other
factors as the Committee shall determine.

     4.4 Interpretation of Plan. The determination of the Committee as to any disputed
question arising under the Plan, including questions of construction and interpretation, shall be
final, binding and conclusive upon all persons, including the Company, its Subsidiaries, its
shareholders, and all Participants.

     4.5 Indemnification. Each person who is or shall have been a member of the Committee
or of the Board of Directors shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably incurred in connection
with or resulting from any claim, action, suit or proceeding to which such person may be a party or
in which such person may be involved by reason of any action taken or failure to act under the Plan
and against and from any and all amounts paid in settlement thereof, with the Company’s approval,
or paid in satisfaction of a judgment in any such action, suit or proceeding against him, provided
such person shall give the Company an opportunity, at its own expense, to handle and defend the
same before undertaking to handle and defend it on such person’s own behalf. The foregoing right
of indemnification shall not be exclusive of, and is in addition to, any other rights of
indemnification to which any person may be entitled under the Company’s Articles of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.

SECTION 5. STOCK SUBJECT TO THE PLAN

     5.1 Number. The aggregate number of shares of Common Stock which may be sold pursuant
to Stock Sales hereunder shall be as determined from time to time by the Board of Directors or the
Committee.

     5.2 Unused Stock. If any shares of Common Stock made available for sale pursuant to a
Stock Sale shall not be sold during an Offering Period, such unused shares
of Common Stock shall not continue to be available under the Plan unless and until the Board
of Directors or the Committee shall establish a new Offering Period with respect to a new Stock
Sale.

-3-

 

     5.3 Adjustment for Change in Outstanding Shares. If there is any change, increase or
decrease, in the outstanding shares of Common Stock which is effected without receipt of additional
consideration by the Company, by reason of a stock dividend, recapitalization, merger,
consolidation, stock split, combination or exchange of stock, or other similar circumstances during
an Offering Period, then in each such event, appropriate adjustments with respect to the aggregate
number of shares of Common Stock available under the Plan for such Offering Period and the Purchase
Price related thereto shall be deemed to be made in order to prevent the dilution or enlargement of
any Participant’s right to purchase a certain number of shares of Common Stock. In connection with
such adjustment or adjustments, fractional shares shall be rounded to the nearest whole share. Any
Committee determination confirming or approving any adjustments shall be final and conclusive.

SECTION
6. ELIGIBILITY

     All full-time and part-time employees of the Company and its Subsidiaries, all Directors, the
Savings Plan Trustee and other persons may be eligible, if, as and when determined by the Board of
Directors or the Committee from time to time, in their sole discretion, to purchase shares of
Common Stock pursuant to a Stock Sale.

SECTION
7. STOCK SALES

     7.1 Stock Sales. The Board of Directors or Committee may from time to time, in their
sole discretion, determine which of the eligible persons identified in Section 6 hereof shall be
eligible to purchase shares of Common Stock in a Stock Sale and shall also determine the terms and
conditions of such Stock Sale, including, without limitation, the Purchase Price, the Offering
Period and the number of shares of Common Stock to be offered in connection therewith.

     7.2 Offer Letter. Upon the Committee making a determination to sell Common Stock
pursuant to a Stock Sale hereunder in accordance with the provisions of this Section 7, the
Committee shall authorize and have sent to each Participant, an offer letter (“Offer Letter”)
setting forth the terms and conditions upon which Common Stock may be purchased by a Participant.
Such Offer Letter will include, without limitation, the number of shares to be sold in the Stock
Sale; the number of shares which may be purchased by a Participant, if a limit is established with
respect to such Participant; the Purchase Price per share of the Common Stock sold; the Offering
Period; instructions for acceptance and payment; the method for adjusting the number of shares
which may be purchased by each Participant wishing to participate in such Stock Sale, in the event of an
over-subscription of shares; and any other items determined by the Committee.

     7.3 Shareholder’s Agreement. Each Participant, other than the Savings Plan Trustee,
who purchases Common Stock pursuant to a Stock Sale shall be required to execute a Shareholder’s
Agreement (the “Shareholder’s Agreement”); provided, however, that the Board of Directors or
Committee may waive this requirement in their discretion. In the absence of such a waiver,
execution of the Shareholder’s Agreement

-4-

 

shall be a condition precedent to the Company issuing
certificates representing shares of Common Stock purchased hereunder.

     7.4 Purchase Price. The Purchase Price per share of Common Stock sold under the Plan
shall be equal to the Fair Market Value of the Common Stock at the beginning of an Offering Period
as determined in accordance with Section 7.5 hereof.

     7.5 Determination of Fair Market Value. The Fair Market Value shall be determined as
follows: (i) if the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, fair market value shall be the mean between the high bid and the low asked
prices for the Common Stock on the last market trading day prior to the date of determination; or
(ii) in the absence of an established market for the Common Stock, fair market value shall be
determined in good faith by the Board of Directors which may, in its sole discretion, utilize an
independent third party to assist with the determination of the fair market value, which may take
the form of a periodic appraisal of the fair market value of a share of Common Stock valued as a
minority interest.

     7.6 Offering Period. Offers to sell Common Stock pursuant to a Stock Sale shall be
effective only during a period of time as established by the Board of Directors or the Committee in
their discretion (the “Offering Period”). Upon termination of an Offering Period, Common Stock may
not be sold pursuant hereto unless a new Offering Period is established hereunder with respect to a
new Stock Sale.

     7.7 Manner of Acceptance. Subject to the limitations and conditions of the Plan or
the Offer Letter, a Participant may accept the Company’s offer to sell Common Stock hereunder, in
whole or in part, from time to time during the Offering Period, only by giving written notice of
acceptance to the Secretary of the Company, which notice shall specify the number of shares of
Common Stock to be purchased by the Participant and shall be accompanied by (1) payment in full to
the Company of the Purchase Price of the shares to be purchased, plus (2) payment in full of such
amount as the Company shall determine to be sufficient to satisfy any liability it may have for any
withholding of federal, state or local income or other taxes incurred by reason of such purchase,
and (3) a Shareholder Agreement meeting the requirements of this Section 7 if requested by the
Company. In the event the number of shares of Common Stock subscribed for in a Stock Sale exceeds
the number of shares offered by the Company pursuant thereto, the number of shares which a
Participant has indicated a desire to purchase will be adjusted on a pro
rata basis by multiplying such number by a second number, the numerator of which is the number
of shares subscribed for by such Participant, and the denominator of which is the aggregate total
number of shares subscribed for by all Participants in such Stock Sale.

     7.8 Payment of Purchase Price. Payment for shares and withholding taxes shall be made
in the form of (1) cash, (2) a personal, certified or bank cashier’s check to the order of the
Company, or (3) in any combination of the foregoing or in any other

-5-

 

form or method approved by the Committee, in its sole discretion, consistent with applicable laws and regulations.

     7.9 Other Terms and Conditions. The Shareholder’s Agreement and the Offer Letter may
contain such other provisions, which shall not be inconsistent with the Plan, as the Committee
shall deem appropriate.

SECTION 8. NON-TRANSFERABILITY OF RIGHT TO PURCHASE

     Rights to purchase Common Stock granted pursuant to a Stock Sale and under the Plan are not
transferable by the Participant except by will or by the laws of descent and distribution. Any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any such right contrary to
the provisions hereof, shall immediately become void.

SECTION 9. ISSUANCE OF SHARES

     As soon as practicable after the Participant has given the Company written notice of his or
her intent to purchase Common Stock pursuant to a Stock Sale, and after making payment and
satisfying all other conditions of the Shareholder’s Agreement and the Offer Letter, the Company
shall issue or transfer to the Participant the number of shares of Common Stock as to which the
Participant has purchased and shall deliver to the Participant a certificate or certificates
therefor, registered in the Participant’s name. In no event shall the Company be required to
transfer fractional shares to the Participant. If the issuance or transfer of shares by the
Company would for any reason, in the opinion of counsel for the Company, violate any applicable
federal or state laws or regulations, the Company may delay issuance or transfer of such shares to
the Participant until compliance with such laws can reasonably be obtained. In no event shall the
Company be obligated to effect or obtain any listing, registration, qualification, consent or
approval under any applicable federal or state laws or regulations or any contract or agreement to
which the Company is a party with respect to the issuance of any such shares.

SECTION 10. AMENDMENTS

     The Board of Directors may at any time and from time to time alter, amend, suspend or
terminate the Plan or any part thereof as it may deem proper.

SECTION 11. TERM OF PLAN

     This Plan shall terminate on May 1, 2013; provided, however, that the Board of Directors may
at any time prior thereto suspend or terminate the Plan.

SECTION 12. RIGHTS AS SHAREHOLDER

     A Participant shall have no rights as a shareholder of the Company with respect to any shares
of Common Stock which are offered for sale under the Plan until the date of the issuance of the
stock certificate for such shares.

-6-

 

SECTION 13. NO EMPLOYMENT RIGHTS

     Nothing contained in this Plan, an Offer Letter or in any Shareholder’s Agreement executed
under the Plan shall confer upon any Participant any right with respect to the continuation of such
Participant’s employment by the Company or any Subsidiary or interfere in any way with the right of
the Company or any Subsidiary, subject to the terms of any separate written employment agreement to
the contrary, at any time, for any or no reason, to terminate such employment or to increase or
decrease the compensation of the Participant from the rate in existence at the time of any Stock
Sale.

SECTION 14. GOVERNING LAW

     The Plan, and all purchases made under this Plan, shall be construed and shall take effect in
accordance with the laws of the State of Montana, without regard to the conflicts of laws rules of
such State.

     Amended and restated effective this 30th day of April, 2008.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	First Interstate BancSystem, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Terrill R. Moore	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:
	 	Executive Vice President and
Chief Executive Officer	 	 

-7-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}]]