2023 Tennessee Code › Title 56 - INSURANCE (§§ 56-1-101 — 56-61-125) › Chapter 12 - INSURANCE GUARANTY ASSOCIATIONS (§§ 56-12-101 — 56-12-220) › Part 2 - LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION ACT (§§ 56-12-201 — 56-12-220) › Section 56-12-204 - Applicability - Limitations on liability

(a)
(1)
This part provides coverage for the policies and contracts specified in subsection (b):
(A)
To persons who, regardless of where they reside except for nonresident certificate holders under group policies or contracts, are the beneficiaries, assignees, or payees, including healthcare providers rendering services covered under health insurance policies or certificates, of persons covered under subdivision (a)(1)(B); and
(B)
To persons who are owners of or certificate holders or enrollees under the policies or contracts, other than structured settlement annuities, and who:
(i)
Are residents; or
(ii)
Are not residents, but only under all of the following conditions:
(a)
The member insurer that issued the policies or contracts is domiciled in this state;
(b)
The states in which the persons reside have associations similar to the association created by this part; and
(c)
The persons are not eligible for coverage by an association in any other state due to the fact that the insurer or the health maintenance organization was not licensed in the state at the time specified in the state's guaranty association law.
(2)
For structured settlement annuities specified in subsection (b), subdivisions (a)(1)(A) and (a)(1)(B) do not apply, and this part, except as provided in subdivisions (a)(3) and (a)(4), provides coverage to a person who is a payee under a structured settlement annuity, or beneficiary of a payee if the payee is deceased, if the payee:
(A)
Is a resident, regardless of where the contract owner resides; or
(B)
Is not a resident, but only under both of the following conditions:
(i)
(a)
The contract owner of the structured settlement annuity is a resident; or
(b)
The contract owner of the structured settlement annuity is not a resident, but the insurer that issued the structured settlement annuity is domiciled in this state, and the state in which the contract owner resides has an association similar to the association created by this part; and
(ii)
Neither the payee, the beneficiary, nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides.
(3)
This part does not provide coverage to the following:
(A)
A person who is a payee or the beneficiary of a contract owner resident of this state if the payee or beneficiary is afforded any coverage by the association of another state; or
(B)
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 that section took effect.
(4)
This part provides coverage to a person who is a resident of this state and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this part is provided coverage under the laws of any other state, the person is not provided coverage under this part. In determining the application of this subdivision (a)(4) in situations where a person could be covered by the association of more than one (1) state, whether as an owner, payee, enrollee, beneficiary, or assignee, this part must be construed in conjunction with other state laws to result in coverage by only one (1) association.
(b)
(1)
This part provides coverage to the persons specified in subsection (a) for policies or contracts of direct, non-group life insurance, accident and health insurance, which, for purposes of this part, includes health maintenance organization subscriber contracts and certificates, or annuities, for certificates under direct group policies and contracts, and for supplemental contracts to any of these, in each case issued by member insurers, except as limited by this part. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities, and any immediate or deferred annuity contracts.
(2)
Except as otherwise provided in subdivision (b)(3), this part does not provide coverage for:
(A)
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;
(B)
A policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract;
(C)
A portion of a policy or contract to the extent that the rate of interest on which it 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:
(i)
Averaged over the period of four (4) years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this part, whichever is earlier, exceeds the rate of interest determined by subtracting two (2) percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four (4) years before the member insurer becomes an impaired or insolvent insurer under this part, whichever is earlier; and
(ii)
On and after the date on which the member insurer becomes an impaired or insolvent insurer under this part, whichever is earlier, exceeds the rate of interest determined by subtracting three (3) percentage points from Moody's Corporate Bond Yield Average as most recently available;
(D)
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:
(i)
A multiple employer welfare arrangement as defined in
29 U.S.C. § 1002(40)
;
(ii)
A minimum premium group insurance plan;
(iii)
A stop-loss group insurance plan; or
(iv)
An administrative services only contract;
(E)
A portion of a policy or contract to the extent that it provides for:
(i)
Dividends or experience rating credits;
(ii)
Voting rights; or
(iii)
Payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract;
(F)
A policy or contract issued in this state by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue the policy or contract in this state;
(G)
A portion of a policy or contract to the extent that the assessments required by §
56-12-208
with respect to the policy or contract are preempted by federal or state law;
(H)
An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner, or policy owner, including without limitation:
(i)
Claims based on marketing materials;
(ii)
Claims based on side letters, riders, or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements;
(iii)
Misrepresentations of or regarding policy or contract benefits;
(iv)
Extra-contractual claims; or
(v)
A claim for penalties or consequential or incidental damages;
(I)
A contractual agreement that establishes the member insurer's obligations 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 is not an affiliate of the member insurer;
(J)
An unallocated annuity contract;
(K)
A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy 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, whichever is earlier. 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 subdivision (b)(2)(K), 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 impairment or insolvency, whichever is earlier, and will not be subject to forfeiture;
(L)
A policy or contract providing any hospital, medical, prescription drug, or other healthcare benefits pursuant to part C or part D of Subchapter XVIII, Chapter 7 of Title 42 of the United States Code, commonly known as Medicare part C and D, or Subchapter XIX, Chapter 7 of Title 42 of the United States Code, commonly known as Medicaid, or any regulations issued pursuant thereto; or
(M)
Structured settlement annuity benefits to which a payee, or beneficiary, has transferred his or her 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 that section became effective.
(3)
The exclusion from coverage in subdivision (b)(2)(C) does not apply to any portion of a policy or contract, including a rider, that provides long-term care or any other health insurance benefits.
(c)
The benefits that the association may become obligated to cover must in no event exceed the lesser of:
(1)
The contractual obligations for which the member insurer is liable or would have been liable if it were not an impaired or insolvent insurer; or
(2)
(A)
With respect to one (1) life, regardless of the number of policies or contracts:
(i)
Three hundred thousand dollars ($300,000) in life insurance death benefits, but not more than one hundred thousand dollars ($100,000) in net cash surrender and net cash withdrawal values for life insurance;
(ii)
One hundred thousand dollars ($100,000) in health insurance benefits; provided, for policies or contracts issued by a member insurer that becomes insolvent after January 1, 2010, the limits for health insurance benefits are as follows:
(a)
One hundred thousand dollars ($100,000) for coverages that are not disability income insurance, health benefit plans, or long-term care insurance, including any net cash surrender and net cash withdrawal values;
(b)
Three hundred thousand dollars ($300,000) for disability income insurance and three hundred thousand dollars ($300,000) for long-term care insurance;
(c)
Five hundred thousand dollars ($500,000) for health benefit plans; and
(iii)
Two hundred fifty thousand dollars ($250,000) in the present value of annuity benefits, including net cash surrender and net cash withdrawal values; or
(B)
With respect to each payee of a structured settlement annuity, or beneficiary or beneficiaries of the payee if deceased, two hundred fifty thousand dollars ($250,000) in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any;
(C)
The association is not obligated to cover more than:
(i)
An aggregate of three hundred thousand dollars ($300,000) in benefits with respect to any one (1) life under subdivisions (c)(2)(A) and (B) except with respect to benefits for health benefit plans under subdivision (c)(2)(A)(ii)(c), in which case the aggregate liability of the association must not exceed five hundred thousand dollars ($500,000) with respect to any one (1) individual; or
(ii)
With respect to one (1) owner of multiple non-group policies of life insurance, whether the policy or contract owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than five million dollars ($5,000,000) in benefits, regardless of the number of policies and contracts held by the owner;
(D)
The limitations set forth in this subsection (c) 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;
(E)
For purposes of this part, benefits provided by a long-term care rider to a life insurance policy or annuity contract are considered the same type of benefits as the base life insurance policy or annuity contract to which it relates.
(d)
In performing its obligations to provide coverage under §
56-12-207
, the association is not required to guarantee, assume, reinsure, reissue, or perform, or cause to be guaranteed, assumed, reinsured, reissued, or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.
Amended by 2019 Tenn. Acts, ch. 5,s 3, eff. 7/1/2019.
Acts 1988, ch. 1032, § 3; 2001, ch. 91, § 2; 2009, ch. 178, § 1; 2010, ch. 713, § 2.