§ 27-34.3-3 - Coverage and limitations.
SECTION 27-34.3-3
§ 27-34.3-3 Coverage and limitations.– (a) This chapter shall provide coverage for the policies and contractsspecified in subsection (b) of this section:
(1) To persons who, regardless of where they reside (exceptfor nonresident certificate holders under group policies or contracts), are thebeneficiaries, assignees or payees of the persons covered under subsection (2);and
(2) To persons who are owners of or certificate holders underthe policies or contracts (other than unallocated annuity contracts, andstructured settlement annuities) and in each case who:
(i) Are residents; or
(ii) Are not residents, but only under all of the followingconditions:
(A) The insurer that issued the policies or contracts isdomiciled in this state;
(B) The states in which the persons reside have associationssimilar to the association created by this chapter; and
(C) The persons are not eligible for coverage by anassociation in any other state due to the fact that the insurer was notlicensed in the state at the time specified in the state's guaranty associationlaw.
(3) For unallocated annuity contracts set forth in subsection(b) of this section, paragraphs (1) and (2) of this subsection shall not apply,and this chapter shall (except as provided in paragraphs (5) and (a)(6) of thissubsection) provide coverage to:
(i) Persons who are owners of the unallocated annuitycontracts if the contracts are issued to or in connection with a specificbenefit plan whose plan sponsor has its principal place of business in thisstate; and
(ii) Persons who are owners of unallocated annuity contractsissued to or in connection with government lotteries if the owners areresidents.
(4) For structured settlement annuities specified insubsection (b)(1), paragraphs (1) and (2) of this subsection shall not apply,and this chapter shall (except as provided in paragraphs (5) and (6) of thissubsection) provide coverage to a person who is a payee under a structuredsettlement annuity (or beneficiary of a payee if the payee is deceased), if thepayee:
(i) Is a resident, regardless of where the contract ownerresides; or
(ii) Is not a resident, but only under both of the followingconditions:
(A) The contract owner of the structured settlement annuityis a resident; or
(II) The contract owner of the structured settlement annuityis not a resident but the insurer that issued the structured settlement annuityis domiciled in this state; and
The state in which the contract owner resides has anassociation similar to the association created by this chapter; and
(B) Neither the payee or beneficiary, nor the contract owneris eligible for coverage by the association of the state in which the payee orcontract owner resides.
(5) This chapter shall not provide coverage to:
(i) A person who is a payee or beneficiary of a contractowner resident of this state, if the payee or beneficiary is afforded anycoverage by the association of another state; or
(ii) A person covered under paragraph (3) of this subsection,if any coverage is provided by the association of another state to the person.
(6) This chapter is intended to provide coverage to a personwho is a resident of this state and, in special circumstances, to anonresident. In order to avoid duplicate coverage, if a person who wouldotherwise receive coverage under this chapter is provided coverage under thelaws of any other state, the person shall not be provided coverage under thischapter. In determining the application of the provisions of this paragraph insituations where a person could be covered by the association of more than onestate, whether as an owner, payee, beneficiary, or assignee, this chapter shallbe construed in conjunction with other state laws to result in coverage by onlyone association.
(b) This chapter shall provide coverage to the personsspecified in subsection (a) of this section for direct, non-group life, health,or annuity policies or contracts and supplemental policies or contracts to anyof these, for certificates under direct group policies and contracts, and forunallocated annuity contracts issued by member insurers, except as limited bythis chapter. Annuity contracts and certificates under group annuity contractsinclude, but are not limited to, guaranteed investment contracts, depositadministration contracts, unallocated funding agreements, allocated fundingagreements, structured settlement annuities, annuities issued to or inconnection with government lotteries and any immediate or deferred annuitycontracts.
(2) This chapter shall not provide coverage for:
(i) A portion of a policy or contract not guaranteed by theinsurer, or under which the risk is borne by the policy or contract owner;
(ii) A policy or contract of reinsurance, unless assumptioncertificates have been issued pursuant to the reinsurance policy or contract;
(iii) A portion of a policy or contract to the extent thatthe rate of interest on which it is based, or the interest rate, crediting rateor similar factor determined by use of an index or other external referencestated in the policy or contract employed in calculating returns or changes invalue:
(A) Averaged over the period of four (4) years prior to thedate on which the member insurer becomes an impaired or insolvent insurer underthis chapter, whichever is earlier, exceeds the rate of interest determined bysubtracting two (2) percentage points from Moody's corporate bond yield averageaveraged for that same four-year (4) period or for such lesser period if thepolicy or contract was issued less than four (4) years before the memberinsurer becomes an impaired or insolvent insurer under this chapter, whicheveris earlier; and
(B) On and after the date on which the member insurer becomesan impaired or insolvent insurer under this chapter, whichever is earlier,exceeds the rate of interest determined by subtracting three (3) percentagepoints from Moody's corporate bond yield average as most recently available;
(iv) A portion of a policy or contract issued to a plan orprogram of an employer, association or other person to provide life, health orannuity benefits to its employees, members or others to the extent that theplan or program is self-funded or uninsured, including but not limited tobenefits payable by an employer, association or other person under:
(A) A multiple employer welfare arrangement as defined in 29U.S.C. section 1144;
(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 itprovides for:
(A) Dividends or experience rating credits;
(B) Voting rights; or
(C) Payment of any fees or allowances to any person,including the policy or contract owner, in connection with the service to oradministration of the policy or contract.
(vi) A policy or contract issued in this state by a memberinsurer at a time when it was not licensed or did not have a certificate ofauthority to issue the policy or contract in this state;
(vii) An unallocated annuity contract issued to or inconnection with a benefit plan protected under the federal pension benefitguaranty corporation, regardless of whether the federal pension benefitguaranty corporation has yet become liable to make any payments with respect tothe benefit plan;
(viii) A portion of unallocated annuity contract that is notissued to or in connection with a specific employee, union or association ofnatural persons benefit plan or a government lottery;
(ix) A portion of a policy or contract to the extent that theassessments required by § 27-34.3-9 with respect to the policy or contractare preempted by federal or state law; and
(x) An obligation that does not arise under the expresswritten terms of the policy or contract issued by the insurer to the contractowner or policy owner, including, without limitation:
(A) Claims based on marketing materials;
(B) Claims based on side letters, riders or other documentsthat were issued by the insurer without meeting applicable policy form filingor approval requirements;
(C) Misrepresentations of or regarding policy benefits;
(D) Extracontractual claims; or
(E) A claim for penalties or consequential or incidentaldamages;
(xi) A contractual agreement that establishes the memberinsurer's obligations to provide a book value accounting guaranty for definedcontribution benefit plan participants by reference to a portfolio of assetsthat is owned by the benefit plan or its trustee, which in each case is not anaffiliate of the member insurer;
(xii) A portion of a policy or contract to the extent itprovides for interest or other changes in value to be determined by the use ofan index or other external reference stated in the policy or contract, butwhich have not been credited to the policy or contract, or as to which thepolicy or contract owner's rights are subject to forfeiture, as of the date themember insurer becomes an impaired or insolvent insurer under this chapter,whichever is earlier. If a policy's or contract's interest or changes in valueare credited less frequently than annually, then, for purposes of determiningthe values that have been credited and are not subject to forfeiture under thisparagraph, the interest or change in value determined by using the proceduresdefined in the policy or contract will be credited as if the contractual dateof crediting interest or changing values was the date of impairment orinsolvency, whichever is earlier, and will not be subject to forfeiture;
(xiii) Any transaction or combination of transactions betweena protected cell and the general account or another protected cell of aprotected cell company organized under chapter 64 of this title; or
(xiv) A policy or contract providing any hospital, medical,prescription drug or other health care benefits pursuant to Part C or Part D ofsubchapter XVIII, chapter 7 of title 42 of the United States Code (commonlyknown as Medicare part C & D) or any regulations issued pursuant thereto.
(c) The benefits that the association may become obligated tocover shall in no event exceed the lesser of:
(1) The contractual obligations for which the insurer isliable or would have been liable if it were not an impaired or insolventinsurer; or
(2) With respect to any one life, regardless of the number ofpolicies or contracts:
(A) Three hundred thousand dollars ($300,000) in lifeinsurance death benefits, but not more than one hundred thousand dollars($100,000) in net cash surrender and net cash withdrawal values for lifeinsurance;
(B) In health insurance benefits:
(I) One hundred thousand dollars ($100,000) for coverages notconsidered as disability insurance or basic hospital, medical and surgicalinsurance or major medical insurance or long-term care insurance, including anynet cash surrender and net cash withdrawal values;
(II) Three hundred thousand dollars ($300,000) for disabilityinsurance and three hundred thousand dollars ($300,000) for long-term careinsurance;
(III) Five hundred thousand dollars ($500,000) for basichospital, medical and surgical insurance; or
(C) Two hundred fifty thousand dollars ($250,000) in thepresent value of annuity benefits, including net cash surrender and net cashwithdrawal values;
(ii) With respect to each individual participating in agovernmental retirement plan established under § 401, 403(b) or 457 of theU.S. Internal Revenue Code, 26 U.S.C. § 401, 403(b) or 457, covered by anunallocated annuity contract or the beneficiaries of each such individual ifdeceased, in the aggregate, two hundred fifty thousand dollars ($250,000) inpresent value annuity benefits, including net cash surrender and net cashwithdrawal values;
(iii) With respect to each payee of a structured settlementannuity or beneficiary or beneficiaries, of the payee if deceased, two hundredfifty thousand dollars ($250,000) in present value annuity benefits, in theaggregate, including net cash surrender and net cash withdrawal values if any;
(iv) However in no event shall the association be obligatedto cover more than: (A) an aggregate of three hundred thousand dollars($300,000) in benefits with respect to any one life under this paragraph andparagraphs (i), (ii) and (iii) of this subdivision except with respect tobenefits for basic hospital, medical and surgical insurance and major medicalinsurance under subparagraph 2(i)(B) of this subsection, in which case theaggregate liability of the association shall not exceed five hundred thousanddollars ($500,000) with respect to any one individual; or (B) with respect toone owner of multiple non-group policies of life insurance, whether the policyowner is an individual, firm, corporation or other person, and whether thepersons insured are officers, managers, employees or other persons, more thanfive million dollars ($5,000,000) in benefits, regardless of the number ofpolicies and contracts held by the owner;
(v) With respect to either: (A) one contract owner providedcoverage under subsection (a)(3)(i); or (B) one plan sponsor whose plans owndirectly or in trust any one or more unallocated annuity contracts not includedin paragraph (ii) of this subdivision, five million dollars ($5,000,000) inbenefits, irrespective of the number of contracts with respect to the contractowner or plan sponsor. Provided, however, in the case where one or moreunallocated annuity contracts that are covered contracts under this chapter andare owned by a trust or other entity for the benefit of two (2) or more plansponsors, coverage shall be afforded by the association if the largest interestin the trust or entity owning the contract or contracts is held by a plansponsor whose principal place of business is in this state and in no eventshall the association be obligated to cover more than five million dollars($5,000,000) in benefits with respect to all such unallocated contracts;
(vi) The limitations set forth in this subsection arelimitations on the benefits for which the association is obligated beforetaking into account either its subrogation and assignment rights or the extentto which those benefits could be provided out of the assets of the impaired orinsolvent insurer attributable to covered policies. The costs of theassociation's obligations under this chapter may be met by the use of assetsattributable to covered policies or reimbursed to the association pursuant toits subrogation and assignment rights.
(d) In performing its obligations to provide coverage under§ 27-34.3-8, the association shall not be required to guarantee, assume,reinsure or perform, or cause to be guaranteed, assumed, reinsured orperformed, contractual obligations of the insolvent or impaired insurer under acovered policy or contract that do not materially affect the economic values oreconomic benefits of the covered policy or contract.