2023 District of Columbia Code › Title 31 - Insurance and Securities › Chapter 39A - Captive Insurance Companies (2004) › Subchapter I - General › § 31–3931.04. Protected cell captive insurers

§ 31–3931.04. Protected cell captive insurers.
(a) For the purposes of this chapter, the term:
(1) “Incorporated protected cell” means a protected cell that is established as a corporation or other legal entity separate from the protected cell captive insurer of which it is a part.
(2) “Protected cell” means a separate account established and maintained by a protected cell captive insurer and shall include an incorporated protected cell
(3) “Protected cell captive insurer” means a captive insurer that:
(A) Is formed and licensed under the provisions of this chapter;
(B) Insures the risks of separate participants through a contract; and
(C) Segregates each participant’s liability through one or more protected cells.
(b)(1) A captive insurer may be organized as a protected cell captive insurer and shall be permitted to form one or more protected cells under this chapter to insure risks of one or more participants. The assets and liabilities of each protected cell shall be held separately from the assets and liabilities of all other protected cells.
(2) Repealed.
(3) Repealed.
(4) A protected cell captive insurer shall, at the time of paying the annual fee, pay an additional annual fee for each protected cell in an amount to be established by the Commissioner.
(5) Each incorporated protected cell of a protected cell captive insurer shall be treated as a captive insurer for purposes of this chapter.
(6) Unless otherwise permitted by the articles of incorporation or other organizational document of a protected cell captive insurer, each incorporated protected cell of the protected cell captive insurer shall have the same directors, secretary, and registered office as the protected cell captive insurer.
(7) A protected cell captive insurer may provide that a protected cell it creates shall be wound up and dissolved upon:
(A) The bankruptcy, death, expulsion, insanity, resignation or retirement of any participant of the protected cell;
(B) The happening of some other event that is not the expiration of a fixed period of time; or
(C) The expiration of a fixed period of time.
(8) In addition to the requirements in § 31-3931.03(b), the articles of incorporation of a protected cell captive insurer:
(A) Shall provide that a protected cell shall not own shares in the protected cell captive insurer of which it is a part; and
(B) May provide that a protected cell may own shares in any other protected cell of the protected cell captive insurer.
(9) The name of a protected cell captive insurer shall include the words “Protected cell captive” or the abbreviation “PCC”.
(10) A name that includes the words “Protected cell captive” may, in setting out or using its name for any purpose under this chapter, do so in full or in the abbreviated form.
(11) A protected cell captive insurer shall assign a distinctive name to each of its protected cells that is not an incorporated protected cell that:
(A) Identifies the protected cell as being part of the protected cell captive insurer;
(B) Distinguishes the protected cell from any other protected cell of the protected cell captive insurer; and
(C) Includes the words “Protected Cell” or the abbreviation “PC”.
(12) An incorporated protected cell must include the words “Incorporated Cell” or the abbreviation “IC”.
(13) Any captive insurer or protected cell formed prior to March 14, 2007, shall not be required to change its name or the designation of any of its protected cells to comply with the provisions of paragraphs (9), (10), (11), or (12) of this subsection.
(14) A protected cell of a protected cell captive insurer, unless created as an incorporated protected cell, has no legal identity separate from that of the protected cell captive insurer of which it is a part.
(15) A protected cell of a protected cell captive insurer may enter into an agreement with its protected cell captive insurer or with another protected cell of the protected cell captive insurer that shall be enforceable as if each protected cell of the protected cell captive insurer were a separate legal entity, even if the protected cell is not organized as an incorporated protected cell.
(16) The assets of a protected cell captive insurer shall be cell assets or general assets. The cell assets comprise the assets of the protected cell captive insurer that are held within or on behalf of its protected cells. The general assets of a protected cell captive insurer comprise the assets of the protected cell captive insurer that are not cell assets.
(17) The liabilities of a protected cell captive insurer shall be cell liabilities or general liabilities. The cell liabilities comprise the obligations of the protected cell captive insurer attributed to its protected cells. The general liabilities of a protected cell captive insurer comprise the obligations of the protected cell captive insurer that are not cell liabilities.
(18) Each protected cell shall be accounted for separately on the books and records of the protected cell captive insurer to reflect the financial condition and results of operations of each protected cell, including net income or loss, dividends or other distributions to participants, and such other factors as may be provided by the participant contract or required by the Commissioner.
(19) Each protected cell captive insurer shall annually file with the Commissioner such financial reports as the Commissioner shall require, which reports shall include financial statements detailing the financial experience of each protected cell.
(20) The captive manager of a protected cell captive insurer shall immediately notify the Commissioner if any protected cell of the protected cell captive insurer becomes insolvent or is otherwise unable to meet its claims or other obligations.
(21) A protected cell captive insurer may create and issue shares in one or more classes or series for one or more protected cells. The proceeds of the issue shall be included in the assets of the protected cell that issued the shares.
(22) The proceeds of the issue of shares, other than protected cell shares, shall be included in the protected cell captive insurer’s general assets.
(23) A protected cell captive insurer may pay a dividend on protected cell shares of any class or series whether or not a dividend is declared on any other class or series of protected cell shares or any other shares.
(24) Dividends may be paid on protected cell shares only from the cell assets of the protected cell that issued the shares and otherwise in accordance with the rights of such shares.
(25) No sale, exchange, or other transfer of assets may be made by a protected cell captive insurer between or among any of its protected cells without the written consent of the participants of the protected cell and the Commissioner.
(26) No sale, exchange, transfer of assets, dividend, or distribution may be made from a protected cell to any person without the Commissioner’s prior written approval. An approval shall not be given if the sale, exchange, transfer, dividend, or distribution will result in the insolvency or impairment with respect to a protected cell.
(27) The owners of a protected cell captive insurer, shall not, by virtue of being owners, be the owners or participants of any protected cell of the protected cell captive insurer.
(28) The participants of a protected cell shall not, by virtue of being such participants, be the owners of the protected cell captive insurer or participants or owners of any other protected cell of the protected cell captive insurer.
(29) Any individual or legal entity may be a participant in a protected cell formed under this chapter.
(30) A participant in a protected cell need not be a shareholder of the protected cell or of the protected cell captive insurer or any affiliate thereof.
(31) No participant contract shall take effect without the Commissioner’s prior written approval. The addition of each new protected cell or the withdrawal or other transfer of any participant from any existing protected cell shall constitute a change in the strategic business plan of that protected cell requiring the Commissioner’s prior written approval.
(32) A protected cell captive insurer shall, in addition to keeping a register of its owners or participants, keep a register of the participants of each of its protected cells.
(33) If a protected cell captive insurer (A) enters into a transaction in respect of a particular protected cell of the protected cell captive insurer, or (B) incurs a liability arising from an activity or asset of a particular protected cell, a claim by any person in connection with the transaction or liability extends only to the cell assets of the protected cell.
(34) If a protected cell captive insurer (A) enters into a transaction in its own right and not in respect of any of its protected cells, (B) incurs a liability arising from an activity its own right and not in respect of any of its protected cells, or (C) incurs a liability arising from an asset held in its own right and not in respect of any of its protected cells, a claim by any person in connection with the transaction or liability shall extend only to the general assets of the protected cell captive insurer.
(35) Except as provided by paragraphs (37) and (39) of this subsection, a protected cell captive insurer shall not satisfy any liability:
(A) Attributable to a particular protected cell of the protected cell captive insurer from the general assets of the protected cell captive insurer; or
(B) Whether attributable to a particular protected cell or not, from the cell assets of another protected cell of the protected cell captive insurer.
(36) If (A) a protected cell captive insurer is permitted to do so under its articles of incorporation or similar organizational documents, and (B) the requirement set forth in paragraph (68) of this subsection is satisfied, the protected cell captive insurer may satisfy any liability attributable to a particular protected cell from the protected cell captive insurer’s general assets.
(37) Prior to a protected cell captive insurer satisfying any liability attributable to a particular protected cell from the protected cell captive insurer’s general assets, the directors who authorize the satisfaction of the liability shall state as part of the authorization that, having made the inquiry into the affairs and prospects of the protected cell captive insurer, they have formed the opinion that:
(A) Immediately following the date on which the liability is proposed to be met by the general assets of the protected cell captive insurer, the protected cell captive insurer will be able to discharge its liabilities as they fall due; and
(B) Having regard to the prospects of the protected cell captive insurer, the intentions of the directors with respect to the management of the protected cell captive insurer’s business, and the amount and character of the financial resources that will, in their view, be available to the protected cell captive insurer, the protected cell captive insurer will be able to continue to carry on business and will be able to discharge its liabilities as they fall due until the expiration of the period of one year immediately following the date on which the liability is proposed to be satisfied by the general assets of the protected cell captive insurer or until the protected cell captive insurer is dissolved, whichever first occurs.
(38) A protected cell captive insurer may satisfy any liability, whether attributable to a particular protected cell or not, from the cell assets of another protected cell if:
(A) It is permitted to do so by the articles of incorporation or other organizational document of that other protected cell, in the case of an incorporated protected cell, or by the participant contract, in the case of all other protected cells; and
(B) Prior to the protected cell captive insurer satisfying any liability from the cell assets of that other protected cell, the directors who authorize the satisfaction of the liability shall obtain written approval from the Commissioner, upon first having made full inquiry into the affairs and prospects of that protected cell, and stating, as part of the authorization, that they have formed the opinion that:
(i) Immediately following the date on which the liability is proposed to be met by the cell assets of the protected cell, the protected cell will be able to discharge its liabilities as they fall due; and
(ii) Having regard to the prospects of the protected cell, the intentions of the directors with respect to the management of the protected cell’s business, and the amount and character of the financial resources that will in their view be available to the protected cell, the protected cell will be able to continue to carry on business and will be able to discharge its liabilities as they become due or until the protected cell is dissolved, whichever first occurs.
(39) A director who makes a statement under paragraph (37) or paragraph (38) of this subsection without having reasonable grounds for the opinion expressed in the statement violates this chapter and may be removed by order of the Commissioner.
(40) If a protected cell captive insurer is liable for any penalty, under this chapter or otherwise, due to an act or failure to act of a protected cell of the protected cell captive insurer or of an officer or director of a protected cell of the protected cell captive insurer, the penalty shall:
(A) Only be met by the protected cell captive insurer from the cell assets of the protected cell; and
(B) Not be enforceable in any way against any other assets of the protected cell captive insurer or assets of any other protected cell.
(41) The directors of a protected cell captive insurer shall establish and maintain, or cause to be established and maintained, procedures:
(A) To segregate cell assets and liabilities separate and separately identifiable from general assets and liabilities;
(B) To segregate cell assets and liabilities of each protected cell separate and separately identifiable from cell assets and liabilities of any other protected cell; and
(C) Where relevant, to apportion or transfer assets and liabilities between protected cells or between protected cells and general assets and liabilities of the protected cell captive insurer.
(42) If a protected cell captive insurer enters into an agreement with respect to a protected cell of the protected cell captive insurer, a director shall ensure that:
(A) The other party to the transaction knows, or ought reasonably to know, that the protected cell captive insurer is acting with respect to a particular protected cell; and
(B) The minutes of any meeting of directors held with regard to the agreement clearly record the fact that the company was entering into the agreement with respect to the protected cell and that the obligation imposed by subparagraph (A) of this paragraph was, or will be, complied with.
(43) The duties of a director of a protected cell captive insurer under this chapter shall be in addition to, and not in lieu of, those under other applicable law.
(44) Any act, matter, deed, agreement, contract, instrument under seal, or other instrument or arrangement which is to be binding on or to inure to the benefit of a protected cell that is not an incorporated protected cell shall be executed by the protected cell captive insurer for and on behalf of the protected cell, shall be identified, and, if in writing, shall indicate that the execution is in the name of, by, or for the account of the protected cell.
(45) If a protected cell captive insurer fails to comply with paragraph (41) of this subsection:
(A) The directors of the protected cell captive insurer shall, notwithstanding any provisions to the contrary in the protected cell’s organizational documents or in any contract with the protected cell captive insurer or otherwise, shall be personally liable for the liabilities of the protected cell captive insurer and the protected cell under the chapter, matter, deed, agreement, contract, instrument or arrangement that was executed; and
(B)(i) Unless they were fraudulent, reckless, negligent, or acted in bad faith, the directors of the protected cell captive insurer shall have a right of indemnity, in the case of a matter on behalf of or attributable to a protected cell, against the assets of the protected cell.
(ii) In the case of a matter not on behalf of or attributable to a protected cell, the directors shall have a right of indemnity against the general assets of the protected cell captive insurer.
(46) Notwithstanding the provisions of paragraph (45)(A) of this subsection, a court may relieve a director of all or part of the personal liability under paragraph (45) of this subsection if he or she satisfies the court that he or she should be relieved because:
(A) The director was not aware of the circumstances giving rise to the liability and, in being not so aware, was not fraudulent, reckless, or negligent and did not act in bad faith; or
(B) The director expressly objected, and exercised such rights as a director, whether by way of voting power or otherwise, so as to try to prevent the circumstances giving rise to the liability.
(47) If, pursuant to the provisions of paragraph (46) of this subsection, the court relieves a director of all or part of his or her personal liability under paragraph (45)(A) of this subsection, the court may order that the liability in question shall instead be met from such of the protected cell or general assets of the account of the protected cell captive insurer as may be specified in the order.
(48) Any provision in the organizational document of a captive insurer or any other contractual provision under which the protected cell captive insurer may be liable, which provision purports to indemnify directors in respect of conduct which would otherwise prohibit them from indemnification by virtue of paragraph (46) of this subsection, shall be void.
(49) A captive insurer may amend its organizational document to become a protected cell captive insurer.
(50) The amendment of the organizational document of a captive insurer to become a protected cell captive insurer shall require approval by:
(A) Holders of 2/3 of the outstanding shares or ownership interests of the captive insurer, unless a greater amount is required by the organizational document of the captive insurer; and
(B) All the creditors of the captive insurer; provided, that if the consent of all the creditors of the captive insurer cannot be obtained, the amendment may be approved by the Commissioner if he or she is satisfied that no creditor will be materially prejudiced by the amendment.
(51) A protected cell captive insurer may amend its other organizational document to cease to be a protected cell captive insurer.
(52) The amendment of the other organizational document of a captive insurer to cease to be a protected cell captive insurer shall require approval by:
(A) The Commissioner;
(B) Holders of 2/3 of the outstanding shares or ownership interests of the protected cell captive insurer, unless a greater amount is required by the other organizational document of the protected cell captive insurer;
(C) Two-thirds of the participants of each protected cell; and
(D) All the creditors of the protected cell captive insurer and its protected cells; provided, that if the consent of all the creditors of the captive insurer and its protected cells cannot be obtained, the amendment may be approved by the Commissioner upon being satisfied that no creditor will be materially prejudiced by the amendment.
(53) If a captive insurer or protected cell captive insurer seeks to change its status in accordance with paragraph (49) or (51) of this subsection, the Commissioner shall issue a certificate of authority that is appropriate to the amended status of the company if there is delivered to the Commissioner:
(A) A copy of the amendment to its name; and
(B) Evidence satisfactory to the Commissioner that the requirements of paragraph (50) or (52) of this subsection have been met.
(54) If a company changes its status in accordance with this section, the change of status shall take effect when the Commissioner issues a new certificate of authority.
(55) A protected cell of a protected cell captive insurer may be transferred to another protected cell captive insurer.
(56) The protected cell captive insurers between which a protected cell is being transferred shall enter into a written agreement that sets forth the terms of the transfer.
(57) A transfer of a protected cell shall be approved when the directors of each protected cell captive insurer who authorized the transfer have approved the transfer and:
(A) When the transfer agreement is approved by the Commissioner as an arrangement in accordance with this chapter;
(B) When the transfer agreement is consented to by at least 2/3 of the participants of the protected cell being transferred and all the creditors, if any, of that protected cell; or
(C) If the agreement of all the creditors of the cell cannot be obtained, when the transfer is approved by the Commissioner upon being satisfied that no creditor of the cell will be materially prejudiced by the transfer.
(58) Within 30 days of a transfer agreement being approved by the Commissioner, the protected cell captive insurer to which the protected cell is being transferred shall deliver to the Commissioner:
(A) A copy of the executed transfer agreement; and
(B) A declaration made in accordance with paragraph (59) of this subsection, signed by a majority of the directors of the protected cell captive insurer transferring the protected cell who authorized the transfer.
(59) The declaration required in paragraph (58)(B) of this subsection shall state that each director has reason to believe that:
(A) The protected cell being transferred is able to discharge its liabilities as they become due;
(B) There are no creditors of the protected cell captive insurer from which the cell is being transferred whose interests will be unfairly prejudiced by the transfer; and
(C) The transfer agreement has been approved in accordance with this chapter.
(60) If a protected cell captive insurer fails to deliver the documents mentioned in paragraph (58) of this subsection within the 30-day period, the Commissioner may void the transfer.
(61) The Commissioner may void the transfer and order the removal of any director who makes a declaration under paragraph (59) of this subsection without having the grounds to do so.
(62) Upon delivery of the documents referred to in paragraph (58) to the Commissioner, the Commissioner shall, if those documents comply with this chapter:
(A) Record the transfer of the protected cell;
(B) Issue to the protected cell a new certificate of authority; and
(C) Record that the protected cell has ceased to be a protected cell of the protected cell captive insurer that transferred the protected cell.
(63) Upon the issuance of the new certificate of authority:
(A) The protected cell shall cease to be a protected cell of the protected cell captive insurer that transferred it;
(B) The protected cell becomes a protected cell of the protected cell captive insurer to which it has been transferred;
(C) If a protected cell was an incorporated protected cell or an unincorporated protected cell;
(i) All property and rights to which the protected cell was entitled immediately before the issue of the new certificate of authority shall remain the property and rights of the protected cell;
(ii) The liabilities, and all contracts, debts, and other obligations to which the protected cell was subject immediately before the issue of the new certificate of authority, shall remain the liabilities, contracts, debts, and other obligations of the protected cell; and
(iii) All actions and other legal proceedings which, immediately before the issue of the new certificate of authority were pending by or against such protected cell may be continued by or against the protected cell.
(64) The operation of paragraph (63) of this subsection shall not be regarded as:
(A) A breach of contract or otherwise as a civil wrong;
(B) A breach of any contractual provision prohibiting, restricting, or regulating the assignment or transfer of rights or liabilities; or
(C) Giving rise to any remedy by a party to a contract or other instrument as an event of default under any contract or other instrument or as causing or permitting the termination of any contract or other instrument or of any obligation or relationship.
(65) A protected cell shall not be transferred under this chapter if the transfer would be inconsistent with the articles of incorporation or similar organizational document, if applicable, of the protected cell, the protected cell captive insurer transferring the protected cell, or the protected cell captive insurer to which it is to be transferred.
(66) Any insurer, including a captive insurer, that is not a protected cell captive insurer, may become a protected cell of a protected cell captive insurer.
(67) A protected cell of a protected cell captive insurer may apply to the Commissioner to be incorporated as an insurer, including a captive insurer, independent from the protected cell captive insurer.
(68) An application made under paragraph (67) of this subsection shall be approved by 2/3 of the participants of the protected cell or, if the protected cell has more than one class of participants, 2/3 approval of each class of participants, unless the organizational document of the protected cell provides for a greater percentage.
(69) If a protected cell has made an application under paragraph (68) of this subsection, a participant of the protected cell who objects to the protected cell being incorporated as an insurer, including a captive, independent of its protective cell captive may petition the Commissioner for an order denying the application on the grounds that the incorporation or the terms of the incorporation unfairly prejudice his or her interests.
(70) An application shall not be made under paragraph (69) of this subsection after the expiration of the 30-day period following the application being made under paragraph (67) of this subsection.
(71) If a protected cell is licensed as a legal entity pursuant to this section, and if the protected cell was either an incorporated protected cell or an unincorporated protected cell of a protected cell captive insurer:
(A) All property and rights to which the protected cell was entitled immediately before its licensure as a new entity shall remain the property and rights of the new entity;
(B) The protected cell shall remain subject to all criminal and civil liabilities and all contracts, debts, and other obligations to which the protected cell was subject immediately before its licensure as a new entity;
(C) All contracts, debts, and other obligations of the protected cell shall remain the contracts, debts, other obligations of the new entity; and
(D) All actions and other legal proceedings which, immediately before the licensure of the protected cell as a new entity, were pending by or against the protected cell may be continued by or against the new entity.
(72) The operation of paragraph (71)(B) and (D) of this subsection shall not be regarded as:
(A) A breach of contract;
(B) A breach of any contractual provision prohibiting, restricting, or regulating the assignment or transfer of rights or liabilities; or
(C) Giving rise to any remedy by a party to a contract or other instrument as an event of default under the contract or other instrument or as causing or permitting the termination of any contract or other instrument or of any obligation or relationship.
(Mar. 17, 2005, D.C. Law 15-262, § 5, 52 DCR 1205; Mar. 14, 2007, D.C. Law 16-286, § 2, 54 DCR 957; Mar. 25, 2009, D.C. Law 17-353, § 166, 56 DCR 1117; Mar. 10, 2015, D.C. Law 20-203, § 2(b), 61 DCR 12572.)
Section References
This section is referenced in § 31-3931.05 and § 31-3932.03.
Effect of Amendments
D.C. Law 16-286 rewrote this section, which formerly read:
“(a) A captive insurer may form one or more segregated accounts to insure risks of one or more participants.
“(b) A captive insurer that maintains a segregated account shall, at the time of paying the annual fee, pay an additional annual fee in an amount to be established by the Commissioner for each segregated account.
“(c) A captive insurer may create one or more segregated accounts to segregate its assets and liabilities from the assets and liabilities of its segregated accounts. The assets and liabilities of each segregated account shall be held separately from the assets and liabilities of all other segregated accounts.
“(d) A captive insurer shall be a single legal entity and each segregated account of or within a captive insurer may be established as a separate legal entity, which shall constitute a legal entity separate from the captive insurer. Each segregated account shall be separately identified or designated as being a part of the captive insurer.
“(e) A captive insurer may create and issue shares in one or more classes or series for one or more segregated accounts. The proceeds of the issue shall be included in the assets of the segregated account that issued the shares.
“(f) The proceeds of the issue of shares, other than segregated account shares, shall be included in the captive insurer’s general assets.
“(g) A captive insurer may pay a dividend on segregated account shares of any class or series whether or not a dividend is declared on any other class or series of segregated account shares, or any other shares.
“(h) Segregated account dividends may be paid on the segregated account shares from the segregated account assets. The dividends shall only be paid to the shareholders of the segregated account from which the segregated account shares were issued and otherwise in accordance with the rights of the shares.
“(i) Any act, matter, deed, agreement, contract, instrument under seal, or other instrument or arrangement which is to be binding on or to inure to the benefit of a segregated account or accounts shall be executed by the captive insurer for and on behalf of such segregated account or accounts, shall be identified, and, if in writing, shall indicate that the execution is in the name of, or by or for the account of, the segregated account or accounts.
“(j) If a captive insurer is in breach of subsection (i) of this section:
“(1) The directors of the captive insurer shall, notwithstanding any provisions to the contrary in the captive insurer’s organizational documents or in any contract with the company or otherwise, incur personal liability for the liabilities of the captive insurer and the segregated account under this chapter, matter, deed, agreement, contract, instrument, or arrangement that was executed; and
“(2) Unless they were fraudulent, reckless, negligent, or acted in bad faith, the directors of the captive insurer shall have a right of indemnity:
“(A) In the case of a matter on behalf of or attributable to a segregated account or accounts; against the assets of that account or accounts.
“(B) In the case of a matter not on behalf of or attributable to any segregated account or accounts, against the general assets of the captive insurer.
“(k) Notwithstanding the provisions of subsection (j)(1) of this section, a court may relieve a director of all or part of this personal liability thereunder if he or she satisfies the court that he or she should be relieved because:
“(1) The director was not aware of the circumstances giving rise to the liability and, in being not so aware, the director was not fraudulent, reckless, or negligent, and did not act in bad faith; or
“(2) The director expressly objected, and exercised his or her rights as a director, whether by way of voting power or otherwise, so as to try to prevent the circumstances giving rise to the liability.
“(l) If, pursuant to the provisions of subsection (k) of this section, the court relieves a director of all or part of his or her personal liability under subsection (j)(1) of this section, the court may order that the liability in question shall instead be met from such of the segregated account or general assets of the account of the captive insurer as may be specified in the order.
“(m) Any provision in the organizational documents of a captive insurer, or any other contractual provision under which the captive insurer may be liable, which purports to indemnify directors in respect of conduct which would otherwise disentitle them to an indemnity by virtue of subsection (j)(2) of this section, shall be void.
“(n) The assets of a captive insurer shall be either segregated account assets or general assets. The segregated account assets shall comprise the assets of the captive insurer held within or on behalf of the segregated accounts of the captive insurer. The general assets of a captive insurer shall comprise the assets of the captive insurer which are not segregated account assets.
“(o) The assets of a segregated account are comprised of assets representing the capital stock and reserves attributable to the segregated account or all other assets attributable to or held within the segregated account. For the purposes of this subsection, ‘reserves’ includes retained earnings, capital surplus, and paid-in capital.
“(p) The directors of a captive insurer shall establish and maintain, or cause to be established and maintained, procedures:
“(1) To segregate, and keep segregated, account assets separate and separately identifiable from general assets;
“(2) To segregate, and keep segregated, account assets of each segregated account separate and separately identifiable from segregated account assets of any other segregated account; and
“(3) If relevant, to apportion or transfer assets and liabilities between segregated accounts, or between segregated accounts and general assets, of the segregated account captive insurer.
“(q) Segregated account assets shall:
“(1) Only be available and used to meet liabilities of the creditors with respect to that segregated account, and those creditors shall thereby be entitled to have recourse to the segregated account assets attributable to that segregated account; and
“(2) Not be available or used to meet liabilities to, and shall be absolutely protected from, the creditors of the captive insurer who are not creditors with respect to a particular segregated account, and those creditors shall not be entitled to have recourse to the protected segregated account assets.
“(r) If a liability of a captive insurer to a person arises from a matter, or is otherwise imposed, with respect to a particular segregated account, the liability shall extend only to, and that person shall, with respect to that liability, be entitled to have recourse only to:
“(1) First, the segregated account assets attributable to the segregated account; and
“(2) Second, the captive insurer’s general assets, to the extent that the segregated account assets attributable to the segregated account, are insufficient to satisfy the liability, and to the extent that the captive insurer’s general assets exceed any minimum capital amounts lawfully required by this chapter.
“(s) If a liability of a captive insurer to a person arises otherwise than from a matter in respect of a particular segregated account or accounts, or is imposed otherwise than in respect of a particular segregated account or accounts, the liability shall extend only to, and that person shall, with respect to that liability, be entitled to have recourse only to the captive insurer’s general assets.
“(t) Liabilities of a captive insurer not attributable to any of its segregated accounts shall be discharged from the account captive insurer’s general assets. Income, receipts, and other property or rights of or acquired by a captive insurer not otherwise attributable to any segregated account shall be attributed to the captive insurer’s general assets to the extent that the captive insurer’s general assets exceed any minimum capital amounts lawfully required by this chapter.
“(u)(1) Each segregated account shall be accounted for separately on the books and records of the captive insurer to reflect the financial condition and results of operations of the segregated account, including net income or loss, dividends, or other distributions to participants, and such other factors as may be provided by the participant contract or required by the Commissioner.
“(2) No sale, exchange, or other transfer of assets shall be made by the captive insurer between or among any of its segregated accounts without the written consent of the segregated accounts and the Commissioner.
“(3) No sale, exchange, transfer of assets, dividend, or distribution shall be made from a segregated account to any person without the Commissioner’s prior written approval and the approval shall not be given if the sale, exchange, transfer, dividend, or distribution would result in the insolvency or impairment with respect to the segregated account.
“(4) Each segregated account captive insurer shall annually file with the Commissioner such financial reports as the Commissioner shall require, which shall include financial statements detailing the financial experience of each segregated account.
“(5) Each captive insurer shall notify the Commissioner within 10 business days of any segregated account that is insolvent or otherwise unable to meet its claims or expense obligations.
“(6) No participant contract shall take effect without the Commissioner’s prior written approval. The addition of each new segregated account or the withdrawal of any participant from any existing segregated account shall constitute a change in the strategic business plan of that segregated account requiring the Commissioner’s prior written approval.
“(v) Any person or legal entity may be a participant in a segregated account formed or licensed under this chapter.
“(w) A participant in a segregated account need not be a shareholder insured within the segregated account or by the captive insurer or any affiliate thereof.”
D.C. Law 17-353 validated a previously made technical correction in subsec. (b)(41)
The 2015 amendment by D.C. Law 20-203 substituted “chapter” for “section” in (a); repealed (b)(2) and (b)(3); added “In addition to the requirements in § 31-3931.03(b)” in (b)(8); and substituted “paragraphs (9), (10), (11), or (12)” for “paragraphs (6), (8), or (9)” in (b)(13).
Emergency Legislation
For temporary (90 day) addition of section, see § 5 of Captive Insurance Company Emergency Act of 2004 (D.C. Act 15-640, November 30, 2004, 52 DCR 1238).