An Act Relating to Qualified Financial Contracts by Domestic Insurers
Maine Legislature, Session 125, LD 1279
Committee: Insurance and Financial Services
Sponsors: RICHARDSON, TREAT
Amends: 24-A MRSA §4353, 24-A MRSA §4387

Legislative Document 
No. 1279 
H.P. 938 
House of Representatives, March 23, 2011 
An Act Relating to Qualified Financial Contracts by Domestic 
Insurers 
Reference to the Committee on Insurance and Financial Services suggested and ordered 
printed. 
HEATHER J.R. PRIEST 
Clerk 
Presented by Representative RICHARDSON of Warren. 
Cosponsored by Representative: TREAT of Hallowell. 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1.  24-A MRSA §4353, sub-§20 is enacted to read: 
20.  Netting agreement.  "Netting agreement" means: 
A.  A contract or agreement, including terms and conditions incorporated by 
reference into a contract or agreement, including a master agreement, that documents 
one or more transactions between the parties to the agreement for or involving one or 
more qualified financial contracts and that provides for the netting, liquidation, setoff, 
termination, acceleration or closeout under or in connection with one or more 
qualified financial contracts or present or future payment or delivery obligations or 
payment or delivery entitlements under one or more qualified financial contracts, 
including liquidation or close-out values relating to such obligations or entitlements 
among the parties to the netting agreement; 
B.  Any master agreement or bridge agreement for one or more master agreements 
described in paragraph A; or 
C.  Any security agreement or arrangement or other credit enhancement or guarantee 
or reimbursement obligation related to any contract or agreement described in 
paragraph A or B. 
A contract or agreement described in paragraph A or B relating to agreements or 
transactions that are not qualified financial contracts is considered to be a netting 
agreement only with respect to those agreements or transactions that are qualified 
financial contracts. For the purposes of this subsection, a master agreement together with 
all schedules, confirmations, definitions and addenda to the master agreement and 
transactions under any master agreement, is treated as one netting agreement. 
Sec. 2.  24-A MRSA §4353, sub-§21 is enacted to read: 
21.  Qualified financial contract.  "Qualified financial contract" means a commodity 
contract, forward contract, repurchase agreement, securities contract, swap agreement and 
any similar agreement that the superintendent determines to be a qualified financial 
contract. 
A.  "Commodity contract" means: 
(1)  A contract for the purchase or sale of a commodity for future delivery on, or 
subject to the rules of, a board of trade or contract market under the federal 
Commodity Exchange Act or a board of trade outside the United States; 
(2)  An agreement that is subject to regulation under Section 19 of the federal 
Commodity Exchange Act and that is commonly known to the commodities trade 
as a margin account, margin contract, leverage account or leverage contract; 
(3)  An agreement or transaction that is subject to regulation under Section 4c(b) 
of the federal Commodity Exchange Act and that is commonly known to the 
commodities trade as a commodity option; 
(4)  Any combination of the agreements or transactions referred to in this 
paragraph; or 
(5)  Any option to enter into an agreement or transaction referred to in this 
paragraph. 
B.  "Forward contract," "repurchase agreement," "securities contract" and "swap 
agreement" have the meanings set forth in the Federal Deposit Insurance Act, 12 
United States Code, Section 1821(e)(8)(D), as amended from time to time. 
Sec. 3.  24-A MRSA §4387 is enacted to read: 
§4387.  Qualified financial contracts 
1.  Qualified financial contracts.  Notwithstanding any other provision of this 
chapter, including any other provision of this chapter permitting the modification of 
contracts, or other provision of law to the contrary, a person may not be stayed or 
prohibited from exercising: 
A.  A contractual right to cause the termination, liquidation, acceleration or closeout 
of obligations under or in connection with any netting agreement or qualified 
financial contract with an insurer because of: 
(1)  The insolvency, financial condition or default of the insurer at any time, if 
the right is enforceable under applicable law other than this chapter; or 
(2)  The commencement of a formal delinquency proceeding under this chapter; 
B.  Any right under a pledge, security, collateral, reimbursement or guarantee 
agreement or arrangement or any other similar security agreement or arrangement or 
other credit enhancement relating to one or more netting agreements or qualified 
financial contracts; 
C.  Subject to section 4381, subsection 2, any right to offset, set off or net out any 
termination value, payment amount or other transfer obligation arising under or in 
connection with one or more qualified financial contracts when the counterparty or its 
guarantor is organized under the laws of the United States or a state or a foreign 
jurisdiction approved by the Securities Valuation Office of the National Association 
of Insurance Commissioners as eligible for netting; or 
D.  If a counterparty to a master netting agreement or a qualified financial contract 
with an insurer subject to a proceeding under this chapter terminates, liquidates, 
closes out or accelerates the agreement or contract, damages must be measured as of 
the date or dates of termination, liquidation, closeout or acceleration.  The amount of 
a claim for damages is the actual direct compensatory damages calculated in 
accordance with subsection 6. 
2.  Termination of contract.  Upon termination of a netting agreement or qualified 
financial contract, the net or settlement amount, if any, owed by a nondefaulting party to 
an insurer that is the subject of a delinquency proceeding under this chapter must be 
transferred to or on the order of the receiver for the insurer, even if the insurer is the 
defaulting party, notwithstanding any walkaway clause in the netting agreement or 
qualified financial contract.  For purposes of this subsection, "walkaway clause" means a 
provision in a netting agreement or a qualified financial contract that, after calculation of 
a value of a party's position or an amount due to or from one of the parties in accordance 
with its terms upon termination, liquidation or acceleration of the netting agreement or 
qualified financial contract, either does not create a payment obligation of a party or 
extinguishes a payment obligation of a party in whole or in part solely because of the 
party's status as a nondefaulting party. Any limited 2-way payment or first method 
provision in a netting agreement or qualified financial contract with an insurer that has 
defaulted is considered to be a full 2-way payment or 2nd method provision as against the 
defaulting insurer. Any such property or amount, except to the extent it is subject to one 
or more secondary liens or encumbrances or rights of netting, offset or setoff, must be a 
general asset of the insurer. 
3.  Transfer of contract.  In making any transfer of a netting agreement or qualified 
financial contract of an insurer subject to a proceeding under this chapter, the receiver 
shall either:  
A.  Transfer to one party, other than an insurer subject to a delinquency proceeding 
under this chapter, all netting agreements and qualified financial contracts between a 
counterparty or any affiliate of the counterparty and the insurer that is the subject of 
the proceeding, including: 
(1)  All rights and obligations of each party under each netting agreement and 
qualified financial contract; and 
(2)  All property, including any guarantees or other credit enhancement, securing 
any claims of each party under each netting agreement and qualified financial 
contract; or 
B.  Transfer none of the netting agreements, qualified financial contracts, rights, 
obligations or property referred to in paragraph A with respect to the counterparty 
and any affiliate of the counterparty. 
4.  Notice.  If a receiver for an insurer makes a transfer of one or more netting 
agreements or qualified financial contracts, then the receiver must use its best efforts to 
notify any person who is a party to the netting agreements or qualified financial contracts 
of the transfer by noon, the receiver's local time, on the business day following the 
transfer.  For purposes of this subsection, "business day" means a day other than a 
Saturday, Sunday or any day on which the New York Stock Exchange or the Federal 
Reserve Bank of New York is closed. 
5.  Transfer prior to delinquency.  Notwithstanding any other provision of this 
chapter and except as provided in this subsection, a receiver may not avoid a transfer of 
money or other property arising under or in connection with a netting agreement or 
qualified financial contract or any pledge, security, collateral or guarantee agreement or 
any other similar security arrangement or credit support document relating to a netting 
agreement or qualified financial contract that is made before the commencement of a 
delinquency proceeding under this chapter.  A transfer may be avoided if the transfer was 
made with actual intent to hinder, delay or defraud the insurer, a receiver appointed for 
the insurer or existing or future creditors.  
6.  Rights of disaffirmance or repudiation.  Disaffirmance or repudiation is 
governed by this subsection. 
A.  In exercising the rights of disaffirmance or repudiation of a receiver with respect 
to any netting agreement or qualified financial contract to which an insurer is a party, 
the receiver for the insurer shall either: 
(1)  Disaffirm or repudiate all netting agreements and qualified financial 
contracts between a counterparty or any affiliate of the counterparty and the 
insurer that is the subject of the proceeding; or 
(2)  Disaffirm or repudiate none of the netting agreements and qualified financial 
contracts referred to in subparagraph (1) with respect to the person or any 
affiliate of the person. 
B.  Notwithstanding any other provision of this chapter, any claim of a counterparty 
against the estate arising from the receiver's disaffirmance or repudiation of a netting 
agreement or qualified financial contract that has not been previously affirmed in the 
liquidation or immediately preceding rehabilitation proceeding must be determined 
and either allowed or disallowed: 
(1)  As if the claim had arisen before the date of the filing of the petition for 
liquidation; 
(2)  If a rehabilitation proceeding is converted to a liquidation proceeding, as if 
the claim had arisen before the date of the filing of the petition for rehabilitation; 
or 
(3)  As if the claim had arisen before the issuance of any order or the 
commencement of any summary proceeding under this chapter. 
The amount of the claim is the actual direct compensatory damages determined as of 
the date of the disaffirmance or repudiation of the netting agreement or qualified 
financial contract.  "Actual direct compensatory damages" does not include punitive 
or exemplary damages, damages for lost profit or lost opportunity or damages for 
pain and suffering, but does include normal and reasonable costs of cover or other 
reasonable measures of damages used in the derivatives, securities or other market for 
the contract and agreement claims. 
7.  Contractual right defined.  "Contractual right," as used in this section, includes 
any right set forth in a rule or bylaw of a derivatives clearing organization as defined in 
the federal Commodity Exchange Act, a multilateral clearing organization as defined in 
the Federal Deposit Insurance Corporation Improvement Act of 1991, a national 
securities exchange, a national securities association, a securities clearing agency or a 
contract market designated under the federal Commodity Exchange Act, a derivatives 
transaction execution facility registered under the federal Commodity Exchange Act, or a 
board of trade as defined in the federal Commodity Exchange Act or in a resolution of the 
governing board thereof and any right, whether or not evidenced in writing, arising under 
statutory or common law, or under law merchant, or by reason of normal business 
practice. 
8.  Affiliates.  This section does not apply to any persons who are affiliates of the 
insurer that is the subject of the proceeding. 
9.  Rights of counterparties.  All rights of counterparties under this chapter apply to 
netting agreements and qualified financial contracts entered into on behalf of the general 
account or separate accounts if the assets of each separate account are available only to 
counterparties to netting agreements and qualified financial contracts entered into on 
behalf of that separate account. 
SUMMARY 
This bill conforms the chapter in the Maine Insurance Code regarding delinquent 
insurers to Section 711 of the National Association of Insurance Commissioners Insurer 
Receivership Model Act regarding netting of qualified financial contracts by insurers who 
have been placed in rehabilitation or liquidation.  This bill also adds 2 related definitions 
from the model act to that chapter.