§ 27-34.3-8 - Powers and duties of the association.
SECTION 27-34.3-8
§ 27-34.3-8 Powers and duties of theassociation. – (a) If a member insurer is an impaired insurer, the association may, in itsdiscretion, and subject to any conditions imposed by the association that donot impair the contractual obligations of the impaired insurer, and that areapproved by the commissioner:
(1) Guarantee, assume or reinsure, or cause to be guaranteed,assumed, or reinsured, any or all of the policies or contracts of the impairedinsurer;
(2) Provide the monies, pledges, loans, notes, guarantees orother means that are proper to effectuate subdivision (1) of this subsectionand assure payment of the contractual obligations of the impaired insurerpending action under subdivision (1) of this subsection.
(b) If a member insurer is an insolvent insurer, theassociation shall, in its discretion, either:
(1) Guaranty, assume or reinsure, or cause to be guaranteed,assumed or reinsured, the policies or contracts of the insolvent insurer; or
(B) Assure payment of the contractual obligations of theinsolvent insurer; and
(ii) Provide monies, pledges, loans, notes, guarantees, orother means that are reasonably necessary to discharge the association'sduties; or
(2) Provide benefits and coverages in accordance with thefollowing provisions:
(i) With respect to life and health insurance policies andannuities, assure payment of benefits for premiums identical to the premiumsand benefits (except for terms of conversion and renewability) that would havebeen payable under the policies or contracts of the insolvent insurer, forclaims incurred:
(A) With respect to group policies and contracts, not laterthan the earlier of the next renewal date under such policies or contracts orforty-five (45) days, but in no event less than thirty (30) days after the dateon which the association becomes obligated with respect to the policies orcontracts;
(B) With respect to nongroup policies, contracts andannuities not later than the earlier of the next renewal date (if any) underthe policies or contracts or one year, but in no event less than thirty (30)days from the date on which the association becomes obligated with respect tothe policies and contracts;
(ii) Make diligent efforts to provide all known insured orannuitants (for non-group policies and contracts) or group policy owners withrespect to group policies or contracts thirty (30) days notice of thetermination (pursuant to subparagraph (i) of this paragraph) of the benefitsprovided;
(iii) With respect to nongroup life and health insurancepolicies and annuities covered by the association, make available to each knowninsured or annuitant, or owner if other than the insured, or annuitant and withrespect to an individual formerly insured or formerly an annuitant under agroup policy who is not eligible for replacement group coverage, make availablesubstitute coverage on an individual basis in accordance with the provisions ofsubdivision (iv) of this subsection, if the insureds or annuitants had a rightunder law or the terminated policy to convert coverage to individual coverageor to continue an individual policy or annuity in force until a specified ageor for a specified time, during which the insurer had no right unilaterally tomake changes in any provision of the policy or annuity or had a right only tomake changes in premium by class;
(iv) In providing the substitute coverage required undersubdivision (iii) of this subsection, the association may offer either toreissue the terminated coverage or to issue an alternative policy.
(B) Alternative or reissued policies shall be offered withoutrequiring evidence of insurability, and shall not provide for any waitingperiod or exclusion that would not have applied under the terminated policy.
(C) The association may reinsure any alternative or reissuedpolicy.
(v) Alternative policies adopted by the association shall besubject to the approval of the domiciliary insurance commissioner and thereceivership court. The association may adopt alternative policies of varioustypes for future issuance without regard to any particular impairment orinsolvency.
(B) Alternative policies shall contain at least the minimumstatutory provisions required in this state and provide benefits that shall notbe unreasonable in relation to the premium charged. The association shall setthe premium in accordance with a table of rates which it shall adopt. Thepremium shall reflect the amount of insurance to be provided and the age andclass of risk of each insured, but shall not reflect any changes in the healthof the insured after the original policy was last underwritten.
(C) Any alternative policy issued by the association shallprovide coverage of a type similar to that of the policy issued by the impairedor insolvent insurer, as determined by the association.
(vi) If the association elects to reissue terminated coverageat a premium rate different from that charged under the terminated policy, thepremium shall be set by the association in accordance with the amount ofinsurance provided and the age and class of risk, subject to approval of thedomiciliary insurance commissioner and the receivership court.
(vii) The association's obligations with respect to coverageunder any policy of the impaired or insolvent insurer or under any reissued oralternative policy shall cease on the date such coverage or policy is replacedby another similar policy by the policy owner, the insured, or the association.
(viii) When proceeding under paragraph (b)(2) of this sectionwith respect to any policy or contract carrying guaranteed minimum interestrates, the association shall assure the payment or crediting of a rate ofinterest consistent with § 27-34.3-3(b)(2)(iii).
(c) Nonpayment of premiums within thirty-one (31) days afterthe date required under the terms of any guaranteed, assumed, alternative orreissued policy or contract or substitute coverage shall terminate theassociation's obligations under the policy or coverage under this chapter withrespect to the policy or coverage, except with respect to any claims incurredor any net cash surrender value which may be due in accordance with theprovisions of this chapter.
(d) Premiums due for coverage after entry of an order ofliquidation of an insolvent insurer shall belong to and be payable at thedirection of the association. If the liquidator of an insolvent insurerrequests, the association shall provide a report to the liquidator regardingsuch premium collected by the association. The association shall be liable forunearned premiums due to policy or contract owners arising after the entry ofthe order.
(e) The protection provided by this chapter shall not applywhere any guaranty protection is provided to residents of this state by laws ofthe domiciliary state or jurisdiction of the impaired or insolvent insurerother then this state.
(f) In carrying out its duties under subsection (b), theassociation may:
(1) Subject to approval by a court of competent jurisdictionin this state, impose permanent policy or contract liens in connection with anyguarantee, assumption or reinsurance agreement, if the association finds thatthe amounts which can be assessed under this chapter are less than the amountsneeded to assure full and prompt performance of the association's duties underthis chapter, or that the economic or financial conditions as they affectmember insurers are sufficiently adverse to render the imposition of suchpermanent policy or contract liens, to be in the public interest;
(2) Subject to approval by a court of competent jurisdictionin this state, impose temporary moratoriums or liens on payments of cash valuesand policy loans, or any other right to withdraw funds held in conjunction withpolicies or contracts, in addition to any contractual provisions for deferralof cash or policy loan value. In addition, in the event of a temporarymoratorium or moratorium charge imposed by the receivership court on payment ofcash values or policy loans, or on any other right to withdraw funds held inconjunction with policies or contracts, out of the assets of the impaired orinsolvent insurer, the association may defer the payment of such cash values,policy loans or other rights by the association for the period of themoratorium or moratorium charge imposed by the receivership court, except forclaims covered by the association to be paid in accordance with a hardshipprocedure established by the liquidator or rehabilitator and approved by thereceivership court.
(g) A deposit in this state, held pursuant to law or requiredby the commissioner for the benefit of creditors, including policy owners, notturned over to the domiciliary liquidator upon the entry of a final order ofliquidation or order approving a rehabilitation plan of an insurer domiciled inthis state or in a reciprocal state, pursuant to § 27-14.3-56, shall bepromptly paid to the association. The association shall be entitled to retain aportion of any amounts so paid to it equal to the percentage determined bydividing the aggregate amount of policy owners' claims related to thatinsolvency for which the association has provided statutory benefits by theaggregate amount of all policy owners' claims in this state related to thatinsolvency and shall remit to the domiciliary receiver the amount so paid tothe association less the amount retained pursuant to this subsection. Anyamount so paid to the association and retained by it shall be treated as adistribution of estate assets pursuant to applicable state insurance lawdealing with early access disbursements.
(h) If the association fails to act within a reasonableperiod of time with respect to an insolvent insurer, as provided in subsection(b) of this section, the commissioner shall have the powers and duties of theassociation under this chapter with respect to the insolvent insurers.
(i) The association may render assistance and advice to thecommissioner, upon the commissioner's request, concerning rehabilitation,payment of claims, continuance of coverage, or the performance of othercontractual obligations of any impaired or insolvent insurer.
(j) The association shall have standing to appear orintervene before any court or agency in this state with jurisdiction over animpaired or insolvent insurer concerning which the association is or may becomeobligated under this chapter or with jurisdiction over any person or propertyagainst whom the association may have rights through subrogation or otherwise.Standing shall extend to all matters germane to the powers and duties of theassociation, including, but not limited to, proposals for reinsuring, modifyingor guaranteeing the policies or contracts of the impaired or insolvent insurerand the determination of the polices or contracts and contractual obligations.The association shall also have the right to appear or intervene before a courtor agency in another state with jurisdiction over an impaired or insolventinsurer for which the association is or may become obligated or withjurisdiction over any person or property against whom the association may haverights through subrogation or otherwise.
(k) A person receiving benefits under this chapter shall bedeemed to have assigned the rights under, and any causes of action against anyperson for losses arising under, resulting from or otherwise relating to, thecovered policy or contract to the association to the extent of the benefitsreceived because of this chapter, whether the benefits are payments of or onaccount of contractual obligations, continuation of coverage or provision ofsubstitute or alternative coverage. The association may require an assignmentto it of these rights and causes of action by any payee, policy or contractowner, beneficiary, insured or annuitant as a condition precedent to thereceipt of any right or benefits conferred by this chapter upon the person.
(2) The subrogation rights of the association under thissubsection shall have the same priority against the assets of the impaired orinsolvent insurer as that possessed by the person entitled to receive benefitsunder this chapter.
(3) In addition to subdivisions (1) and (2) of thissubsection, the association shall have all common law rights of subrogation andany other equitable or legal remedy that would have been available to theimpaired or insolvent insurer or owner, beneficiary or payee, of a policy orcontract with respect to the policy or contracts including without limitation,in the case of a structured settlement annuity, any rights of the owner,beneficiary or payee of the annuity, to the extent of benefits receivedpursuant to this chapter, against a person originally or by successionresponsible for the losses arising from the personal injury relating to theannuity or payment therefore, excepting any such person responsible solely byreason of serving as an assignee in respect of a qualified assignment under§ 130 of the United States Internal Revenue Code, 26 U.S.C. § 130.
(4) If the preceding provisions of this subsection areinvalid or ineffective with respect to any person or claim for any reason, theamount payable by the association with respect to the related coveredobligations shall be reduced by the amount realized by any other person withrespect to the person or claim that is attributable to the policies, or portionthereof, covered by the association.
(5) If the association has provided benefits with respect toa covered obligation and a person recovers amounts to which the association hasrights as described in the preceding paragraphs of this subsection, the personshall pay to the association the portion of the recovery attributable to thepolicies, or portions thereof, covered by the association.
(l) In addition to the rights and powers provided in thischapter, the association may:
(1) Enter into any contracts as are necessary or proper tocarry out the provisions and purposes of this chapter;
(2) Sue or be sued, including taking any legal actionsnecessary or proper to recover any unpaid assessments under § 27-34.3-9and to settle claims or potential claims against it;
(3) Borrow money to effect the purposes of this chapter; anynotes or other evidence of indebtedness of the association not in default shallbe legal investments for domestic insurers and may be carried as admittedassets;
(4) Employ or retain persons as are necessary or appropriateto handle the financial transactions of the association, and to perform anyother functions as become necessary or proper under this chapter;
(5) Take such legal action that may be necessary orappropriate to avoid or recover payment of improper claims;
(6) Exercise, for the purposes of this chapter and to theextent approved by the commissioner, the powers of a domestic life or healthinsurer, but in no case may the association issue insurance policies or annuitycontracts other than those issued to perform its obligations under this chapter;
(7) Organize itself as a corporation or another legal formpermitted by the laws of this state;
(8) Request information from a person seeking coverage fromthe association in order to aid the association in determining its obligationsunder this chapter with respect to the person, and the person shall promptlycomply with the request; and
(9) Take other necessary or appropriate action to dischargeits duties and obligations under this chapter or to exercise its powers underthis chapter.
(m) The association may join an organization of one or moreother state associations of similar purposes, to further the purposes andadminister the powers and duties of the association.
(n) At any time within one hundred eighty (180) days of thedate of the order of liquidation, the association may elect to succeed to therights and obligations of the ceding member insurer that relate to policies orannuities covered, in whole or in part, by the association, in each case underany one or more reinsurance contracts entered into by the insolvent insurer andits reinsurers and selected by the association. Any such assumption shall beeffective as of the date of the order of liquidation. The election shall beeffected by the association or the national organization of life and healthinsurance guaranty associations (NOLHGA) on its behalf sending written notice,return receipt requested to the affected reinsurers.
(b) To facilitate the earliest practicable decision aboutwhether to assume any of the contracts of reinsurance, and in order to protectthe financial position of the estate, the receiver and each reinsurer of theceding member insurer shall make available upon request to the association orto NOLHGA on its behalf as soon as possible after commencement of formaldelinquency proceedings: (i) Copies of in-force contracts of reinsurance andall related files and records relevant to the determination of whether suchcontracts should be assumed, and (ii) Notices of any defaults under thereinsurance contracts or any known event or condition which with the passage oftime could become a default under the reinsurance contracts.
(c) The following subparagraphs (i) through (iv) shall applyto reinsurance contracts so assumed by the association.
(i) The association shall be responsible for all unpaidpremiums due under the reinsurance contracts for periods both before and afterthe date of the order of liquidation, and shall be responsible for theperformance of all other obligations to be performed after the date of theorder of liquidation, in each case which relate to policies and annuitiescovered, in whole or in part, by the association. The association may chargepolicies and annuities covered in part by the association, through reasonableallocation methods, the costs for reinsurance in excess of the obligations ofthe association and shall provide notice and an accounting of these chargesto the liquidator;
(ii) The association shall be entitled to any amounts payableby the reinsurer under the reinsurance contracts with respect to losses orevents that occur in periods after the date of the order of liquidation andthat relate to policies or annuities covered in whole or in part, by theassociation provided, that, upon receipt of any such amounts, the associationshall be obliged to pay to the beneficiary under the policy or annuity onaccount of which the amounts were paid a portion of the amount equal to thelesser of:
(A) The amount received by the association; or
(B) The excess of the amount received by the association;over the amount equal to the benefits paid by the association on account of thepolicy or annuity less the retention of the insurer applicable to the loss orevent;
(iii) Within thirty (30) days following the association'selection (the "election date"), the association and each reinsurer undercontracts assumed by the association shall calculate the net balance due to orfrom the association under each such reinsurance contract as of the electiondate with respect to policies or annuities covered, in whole or in part, by theassociation which calculation shall give, full credit to all items paid byeither the insurer or its receiver or the reinsurer prior to the election date.The reinsurer shall pay the receiver any amounts due for losses or events priorto the date of the order of liquidation, subject to any set-off for premiumsunpaid for periods prior to the date, and the association or reinsurer shallpay any remaining premiums in each case within five (5) days of the completionof the aforementioned calculation. Any disputes over the amounts due to eitherthe association or the reinsurer shall be resolved by arbitration pursuant tothe terms of the affected reinsurance contracts or, if the contract contains noarbitration clause, as otherwise provided by law. If the receiver has receivedany amounts due the association pursuant to paragraph (ii), the receiver, shallremit the same to the association as promptly as practicable.
(iv) If the association or receiver, on the association'sbehalf, within sixty (60) days of the election date, pays the unpaid premiumsdue for periods both before and after the election date, that relate topolicies or annuities covered in whole or in part by the association thereinsurer shall not be entitled to terminate the reinsurance contracts forfailure to pay premium insofar as the reinsurance contracts relate to policiesor annuities covered in whole or in part by the association and shall not beentitled to set off any unpaid amounts due under other contracts, or unpaidamounts due from parties other than the association against amounts due to theassociation.
(2) During the period from the date of the order ofliquidation until the election date (or, if the election date does not occur,until one hundred eighty (180) days after the date of the order of liquidation).
(a) Neither the association nor the reinsurer shall have anyrights or obligations under reinsurance contracts that the association has theright to assume under subdivision (n) (1), whether for periods prior to orafter the date of the order of liquation; and
(ii) The reinsurer, the receiver and the association shall,to the extent practicable, provide each other data and records reasonablyrequested;
(b) Provided that once the association has elected to assumea reinsurance contract, the parties' rights and obligations shall be governedby subdivision (n)(1).
(3) If the association does not elect to assume a reinsurancecontract by the election date pursuant to subdivision (n)(1), the associationshall have no rights or obligations, in each case for periods both before andafter the date of the order of liquidation, with respect to the reinsurancecontract.
(4) When policies or annuities, or covered obligations withrespect thereto, are transferred to an assuming insurer, reinsurance on thepolicies or annuities may also be transferred by the association, in the caseof contracts assumed under subdivision (n)(1), subject to the following:
(a) Unless the reinsurer and the assuming insurer agreeotherwise, the reinsurance contract transferred shall not cover any newpolicies of insurance or annuities in addition to those transferred;
(b) The obligations described in paragraph (n)(1) of thissection shall not apply with respect to matters arising after the effectivedate of the transfer;
(c) Notice shall be given in writing, return receiptrequested, by the transferring party to the affected reinsurer not less thanthirty (30) days prior to the effective date of the transfer.
(5) The provisions of subsection (n) shall supersede theprovisions of any law or of any affected reinsurance contract that provides foror requires any payment of reinsurance proceeds, on account of losses or eventsthat occur in periods after the date of the order of liquidation to thereceiver, of the insolvent insurer or any other person. The receiver, shallremain entitled to any amounts payable by the reinsurer under the reinsurancecontracts with respect to losses or events that occur in periods prior to thedate of the order of liquidation subject to applicable setoff provisions.
(6) Except as otherwise provided in this section, nothing inthis section (n):
Shall alter or modify the terms and conditions of anyreinsurance contract.
Nothing in this section shall abrogate or limit any rights ofany reinsurer to claim that it is entitled to rescind a reinsurance contract.
Nothing in this section shall give a policy holder orbeneficiary an independent cause of action against an indemnity reinsurer thatis not otherwise set forth in the reinsurance contract. Nothing in this sectionshall limit or affect the association's rights as a creditor of the estateagainst the assets of the estate. Nothing in this section shall apply toreinsurance agreements covering property or casualty risks.
(o) The board of directors of the association shall havediscretion and shall exercise reasonable business judgment to determine themeans by which the association is to provide the benefits of this chapter in aneconomical and efficient manner.
(p) Where the association has arranged or offered to providethe benefits of this chapter to a covered person under a plan or arrangementthat fulfills the association's obligations under this chapter, the personshall not be entitled to benefits from the association in addition to or otherthan those provided under the plan or arrangement.
(q) In carrying out its duties in connection withguaranteeing, assuming or reinsuring policies or contracts under subsection (a)or (b) of this section, the association may, subject to approval of thereceivership court, issue substitute coverage for a policy or contract thatprovides an interest rate, crediting rate or similar factor determined by useof an index or other external reference stated in the policy or contractemployed in calculating returns or changes in value by issuing an alternativepolicy or contract in accordance with the following provisions:
(r) Venue in a suit against the association arising underthis chapter shall be in Providence County. The association shall not berequired to give an appeal bond in an appeal that relates to a cause of actionarising under this chapter.
(1) In lieu of the index or other external reference providedfor in the original policy or contract, the alternative policy or contractprovides for:
(i) A fixed interest rate; or
(ii) Payment of dividends with minimum guarantees; or
(iii) A different method of calculating interest or changesin value.
(2) There is no requirement for evidence of insurability,waiting period or other exclusion that would not have applied under thereplaced policy or contract; and
(3) The alternative policy or contract is substantiallysimilar to the replaced policy or contract in all other material terms.