2023 Montana Code Annotated › Title 33. Insurance and Insurance Companies › Chapter 10. Insurance Guaranty Associations › Part 2. Life and Health Insurance Guaranty Associations › 33-10-224. Coverage, limitations, and extent of liability

33-10-224. Coverage, limitations, and extent of liability.
(1) (a) This part establishes coverage for the policies and contracts specified in subsection (2) to persons who, except as provided in subsections (1)(b) through (1)(e), are:
(i) beneficiaries, assignees, or payees, including health care providers, of the persons covered under subsection (1)(a)(ii) regardless of where the beneficiaries, assignees, or payees reside, except for nonresident certificate holders under group policies or contracts;
(ii) owners of or certificate holders or enrollees under the policies and contracts specified in subsection (2), other than unallocated annuity contracts and structured settlement annuities that are provided for in subsections (1)(b) and (1)(c), if the persons are:
(A) residents; or
(B) nonresidents, but only under all of the following conditions:
(I) the member insurer that issued the policies is domiciled in this state;
(II) the state in which the person resides has an association similar to the association created under this part; and
(III) the person is not eligible for coverage by an association in any other state because the insurer, health service corporation, or health maintenance organization was not licensed in the state at the time specified in the state's guaranty association law.
(b) The provisions of subsection (1)(a) do not apply to unallocated annuity contracts specified in subsection (2). A person who is the owner of an unallocated annuity contract receives coverage under this part, except as provided in subsections (1)(d) and (1)(e), if:
(i) the contract is issued to or in connection with a specific benefit plan whose plan sponsor has its principal place of business in this state; or
(ii) the unallocated annuity contract was issued to or in connection with a government lottery if the owner is a resident.
(c) The provisions of subsection (1)(a) do not apply to structured settlement annuities specified in subsection (2). A person who is a payee under a structured settlement annuity or the beneficiary of a payee if the payee is deceased receives coverage under this part, except as provided in subsections (1)(d) and (1)(e), if the payee:
(i) is a resident, regardless of where the contract owner resides; or
(ii) is not a resident and one of the following conditions applies:
(A) the contract owner of the structured settlement annuity is a resident and is not eligible for coverage by another state's association, and the payee or beneficiary is not eligible for coverage by the association of the state in which the payee or beneficiary resides; or
(B) the contract owner of the structured settlement annuity is not a resident, the insurer that issued the structured settlement annuity is domiciled in this state, the state in which the contract owner resides has an association similar to the association created by this part, and the payee, beneficiary, and contract owner are not eligible for coverage by the association in the state in which the payee, beneficiary, or contract owner resides.
(d) This part does not provide coverage to:
(i) a person who is a payee or a beneficiary of a contract owner that is a resident of this state if the payee or beneficiary is afforded any coverage by the association of another state;
(ii) a person covered under subsection (1)(b) if any coverage is provided by the association of another state to the person; or
(iii) a person who acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 U.S.C. 5891(c)(3)(A), regardless of whether the transaction occurred before or after 26 U.S.C. 5891(c)(3)(A) became effective.
(e) This part is intended to provide coverage to a person who is a resident of this state and, in special circumstances, to a nonresident. To avoid duplicate coverage, a person may not receive coverage under this part if the person who would otherwise receive coverage under this part receives coverage under the laws of any other state. To determine the application of this subsection (1)(e) to a situation in which a person could be covered by the association of more than one state, whether as an owner, payee, beneficiary, or assignee, this part must be construed in conjunction with other state laws to result in coverage by only one association.
(2) (a) (i) Except as otherwise provided in this part, this part provides coverage to the persons specified in subsection (1) for:
(A) direct, nongroup life and health policies, direct, nongroup annuity contracts, and supplemental contracts to any of these;
(B) certificates under direct group policies and contracts and supplemental contracts to any of these; and
(C) unallocated annuity contracts issued by member insurers.
(ii) Annuity contracts and certificates under group annuity contracts include but are not limited to guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement annuities, annuities issued in connection with government lotteries, and any immediate or deferred annuity contracts.
(b) This part does not provide coverage for any of the following:
(i) a portion of a policy or contract not guaranteed by the member insurer or under which the risk is borne by the policy or contract owner;
(ii) a policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract;
(iii) except for the portion of the policy, including a rider, that provides long-term care or any other health insurance benefits, a portion of a policy or contract to the extent that the rate of interest on which the portion is based or the interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value:
(A) when averaged over the period of 4 years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this part exceeds the rate of interest determined by subtracting 2 percentage points from Moody's corporate bond yield average that is averaged for that same period or for a lesser period if the policy or contract was issued less than 4 years before the member insurer became an impaired or insolvent insurer under this part; and
(B) when the returns or changes in value exceed the rate of interest determined by subtracting 3 percentage points from the Moody's corporate bond yield average most recently available on or after the date on which the member insurer becomes an impaired or insolvent insurer under this part;
(iv) a portion of a policy or contract issued to a plan or program of an employer, association, or other person to provide life, health, or annuity benefits to its employees, members, or others to the extent that the plan or program is self-funded or uninsured, including but not limited to benefits payable by an employer, association, or other person under:
(A) a multiple employer welfare arrangement as defined in 29 U.S.C. 1002;
(B) a minimum premium group insurance plan;
(C) a stop-loss group insurance plan; or
(D) an administrative services-only contract;
(v) a portion of a policy or contract to the extent that it contains provisions for dividends, experience rating credits, or voting rights or for payment of any fees or allowances to any person, including the policyowner or contract owner, in connection with the service to or administration of the policy or contract;
(vi) a policy or contract issued in this state by a member insurer at any time when it was not licensed or did not have a certificate of authority to issue the policy or contract in this state;
(vii) any unallocated annuity contract issued to or in connection with a benefit plan that is protected under the federal pension benefit guaranty corporation, regardless of whether the federal pension benefit guaranty corporation has yet become liable to make any payments with respect to the benefit plan;
(viii) a portion of any unallocated annuity contract that is not issued to or in connection with a specific employee, union, or association of natural persons' benefit plan or a government lottery;
(ix) a portion of a policy or contract to the extent that federal or state law preempts or otherwise does not permit the assessments required by 33-10-227 with respect to the policy or contract;
(x) an obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policyowner, including without limitation:
(A) claims based on marketing materials;
(B) claims based on side letters, riders, or other documents that were issued by the insurer without meeting applicable requirements for filing policy forms or for policy approval;
(C) misrepresentation of or regarding policy benefits;
(D) extracontractual claims; or
(E) a claim for penalties or consequential or incidental damages;
(xi) a contractual agreement that establishes the member insurer's obligation to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case may not be an affiliate of the member insurer;
(xii) a portion of a policy or contract to the extent that it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policyowner's or contract owner's rights are subject to forfeiture as of the date the member insurer becomes an impaired or insolvent insurer under this part. If a policy's or contract's interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this section, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of the impairment or insolvency of the member insurer and the interest or changes in value are not subject to forfeiture.
(xiii) a policy or contract providing any hospital, medical, prescription drug, or other health care benefits pursuant to either 42 U.S.C. 1395w-21 through 1395w-152, commonly known as medicare parts C and D, or 42 U.S.C. 1396 to 1396w-5, commonly known as medicaid, or any regulations issued pursuant to those federal statutes; or
(xiv) structured settlement annuity benefits to which a payee or beneficiary has transferred the payee's or beneficiary's rights in a structured settlement factoring transaction as defined in 26 U.S.C. 5891(c)(3)(A), regardless of whether the transaction occurred before or after 26 U.S.C. 5891(c)(3)(A) became effective.
(3) The benefits for which the association may become liable may not exceed the lesser of:
(a) the contractual obligations for which the insurer is liable or would have become liable if it were not an impaired or insolvent insurer; or
(b) (i) with respect to any one life, regardless of the number of policies or contracts:
(A) $300,000 in life insurance death benefits, but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance;
(B) in health insurance benefits:
(I) $500,000 for health insurance coverage;
(II) $300,000 for disability income insurance;
(III) $300,000 for long-term care insurance;
(IV) $100,000, including any net cash surrender and net cash withdrawal values, for coverages not included in subsections (3)(b)(i)(B)(I) through (3)(b)(i)(B)(III);
(C) $250,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values;
(ii) with respect to each individual participating in a governmental retirement plan established under section 401, 403(b), or 457 of the Internal Revenue Code and covered by an unallocated annuity contract or with respect to the beneficiaries of each individual, if deceased, in the aggregate, $250,000 in present value annuity benefits, including net cash surrender and net cash withdrawal values;
(iii) with respect to each payee of a structured settlement annuity or beneficiary of the payee if the payee is deceased, $250,000 in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any;
(iv) with respect to either one contract owner provided coverage under subsection (1)(b) or one plan sponsor whose plan owns directly or in trust one or more unallocated annuity contracts not included in subsection (3)(b)(ii), $5 million in benefits, irrespective of the number of contracts held by the contract owner or plan sponsor. If one or more unallocated annuity contracts are covered contracts under this part and are owned by a trust or other entity for the benefit of two or more plan sponsors, coverage must be afforded by the association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this state. In no event is the association obligated to cover more than $5 million in benefits with respect to all these unallocated contracts.
(4) In no event is the association obligated to cover more than:
(a) an aggregate of $300,000 in benefits with respect to any one life under subsections (3)(b)(i) through (3)(b)(iii), except with respect to benefits for health insurance coverage under subsection (3)(b)(i), in which case the aggregate liability of the association may not exceed $500,000 with respect to any one individual; and
(b) with respect to one owner of multiple nongroup policies of life insurance, whether the policyowner is an individual, firm, corporation, or other person and whether the persons insured are officers, managers, employees, or other persons, $5 million in benefits, regardless of the number of policies and contracts held by the owner.
(5) The limitations set forth in this section are limitations on the benefits for which the association is obligated before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the association's obligations under this part may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its subrogation and assignment rights.
(6) In performing its obligations to provide coverage under this part, the association is not required to guarantee, assume, reinsure, or perform or cause to be guaranteed, assumed, reinsured, or performed the contractual obligations of the impaired or insolvent insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.
(7) For purposes of this part, benefits provided by a long-term care rider to a life insurance policy or annuity contract must be considered the same type of benefits as the basic life insurance policy or annuity contract to which it relates.
History: En. 40-5808 by Sec. 8, Ch. 245, L. 1974; R.C.M. 1947, 40-5808(10); amd. Sec. 6, Ch. 576, L. 1987; amd. Sec. 62, Ch. 596, L. 1993; amd. Sec. 17, Ch. 195, L. 2003; amd. Sec. 9, Ch. 27, L. 2011; amd. Sec. 6, Ch. 25, L. 2019.