Bill Text: VA HB448 | 2010 | Regular Session | Chaptered
Bill Title: Virginia Life, Accident & Sickness Insurance Guaranty Association; coverage for polices & contracts.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2010-04-11 - Governor: Acts of Assembly Chapter text (CHAP0510) [HB448 Detail]
Download: Virginia-2010-HB448-Chaptered.html
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Be it enacted by the General Assembly of Virginia: 1. That §§38.2-1442 and 38.2-1700 through 38.2-1715 of the Code of Virginia are amended and reenacted as follows: §38.2-1442. Guaranty association obligations. A domestic insurer may invest in any obligation not in default
of the Virginia Life, Accident and Sickness Insurance Guaranty Association
issued pursuant to subdivision L 3 §38.2-1700. Purpose and applicability of chapter. A. The purpose of this chapter is to protect, subject to certain
limitations, B. This chapter shall provide coverage for the policies and contracts specified in subsection C as follows: 1. This chapter shall provide coverage, for the policies and contracts specified in subsection C, to persons who, regardless of where they reside, except for nonresident certificate holders under group policies or contracts, are the beneficiaries, assignees, or payees of the persons covered under subdivision B 2. 2. This chapter shall provide coverage, for the policies and contracts specified in subsection C, to persons who are owners of or certificate holders under the policies or contracts, other than unallocated annuity contracts and structured settlement annuities, and in each case who: a. Are residents; or b. Are not residents and (i) the insurer that issued the policies or contracts is domiciled in the Commonwealth, (ii) the states in which the persons reside have associations similar to the Association, and (iii) the persons are not eligible for coverage by an association in any other state due to the fact that the insurer was not licensed in the state at the time specified in the state's guaranty association law. 3. For unallocated annuity contracts specified in subsection C, subdivisions B 1 and B 2 shall not apply, and this chapter, except as provided in subdivisions B 5 and B 6, shall provide coverage to persons who are the owners of the unallocated annuity contracts if the contracts are issued to or in connection with a specific benefit plan whose plan sponsor has its principal place of business in this Commonwealth. 4. For structured settlement annuities specified in subsection C, subdivision B 1 and B 2 shall not apply and this chapter, except as provided in subdivisions B 5 and B 6, shall provide 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 and both (i) the contract owner of the structured settlement annuity is (a) a resident or (b) not a resident but the insurer that issued the structured settlement annuity is domiciled in the Commonwealth and the state in which the contract owner resides has an association similar to the Association; and (ii) neither the payee or beneficiary, nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides. 5. This chapter shall not provide coverage to: a. A person who is a payee, or beneficiary, of a contract owner resident of the Commonwealth if the payee, or beneficiary, is afforded any coverage by the association of another state; or b. A person covered under subdivision B 3 if any coverage is provided by the association of another state to the person. 6. This chapter is intended to provide coverage to a person who is a resident of the Commonwealth and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this chapter is provided coverage under the laws of any other state, the person shall not be provided coverage under this chapter. In determining the application of the provisions of this subdivision in situations where a person could be covered by the association of more than one state, whether as an owner, payee, beneficiary, or assignee, this chapter shall be construed in conjunction with other state laws to result in coverage by only one association. C. This chapter shall 1. Provide coverage to the persons specified in subsection
B for direct, nongroup life
(1) Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting two 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 years before the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier; and (2) On and after the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting three 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: (1) A multiple employer welfare arrangement as defined in 29 U.S.C. §1144; (2) A minimum premium group insurance plan; (3) A stop-loss agreement described in subsection B of § 38.2-109; or (4) An administrative services only contract; e. A portion of a policy or contract to the extent that it provides for: (1) Dividends or experience rating credits; (2) Voting rights; or (3) 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 the Commonwealth by a member insurer at a time when its license to issue the policy or contract in the Commonwealth had been suspended, revoked, not renewed, or voluntarily withdrawn; g. An unallocated annuity contract issued to or in connection with a benefit plan protected under the federal Pension Benefit Guaranty Corporation, regardless of whether the federal Pension Benefit Guaranty Corporation has yet become liable to make any payments with respect to the benefit plan; h. A portion of an unallocated annuity contract that is not issued to or in connection with a specific employee, union, or association of natural persons benefit plan; i. A portion of a policy or contract to the extent that the assessments required by §38.2-1705 with respect to the policy or contract are preempted by federal or state law; j. An obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including: (1) Claims based on marketing materials; (2) Claims based on side letters, riders, or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements; (3) Misrepresentations of or regarding policy benefits; (4) Extra-contractual claims; or (5) A claim for penalties or consequential or incidental damages; k. 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; l. 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 chapter, 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, 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; m. A policy or contract providing any hospital, medical, prescription drug or other health care benefits pursuant to Part C or Part D of Subchapter XVIII, chapter 7 of Title 42 of the United States Code (known as Medicare Parts C and D) or any regulations issued pursuant thereto; or
D. 1. 2.
a. One life, regardless of the number of policies or contracts: (1) $300,000 in life insurance death benefits, but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance; (2) In health insurance benefits, (i) $100,000 for coverage not defined as disability insurance, basic hospital, medical and surgical insurance, major medical insurance or long-term care insurance including any net cash surrender and net cash withdrawal values; (ii) $300,000 for accident and sickness insurance that constitutes disability insurance or long-term care insurance; and (iii) $500,000 for accident and sickness insurance that constitutes basic hospital medical and surgical insurance or major medical insurance; and (3) $250,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values; b. Each individual participating in a benefit plan established under Section 401, 403(b) or 457 of the U.S. Internal Revenue Code who (i) selected an investment option that includes investment in unallocated annuity contracts and (ii) is covered by such an unallocated annuity contract, including the beneficiaries of each such individual if deceased, in the aggregate, $250,000 in present value of annuity benefits, including net cash surrender and net cash withdrawal values; c. Each payee of a structured settlement annuity (or beneficiary or beneficiaries of the payee if deceased), $250,000 in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any; and d. One plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts part or all of any of which is not included in subdivision 2 b, $5 million in benefits, irrespective of the number of contracts with respect to the plan sponsor. However, in the case where one or more unallocated annuity contracts are covered contracts under this chapter and are owned by a trust or other entity for the benefit or two or more plan sponsors, coverage shall be afforded by the Association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in the Commonwealth and in no event shall the Association be obligated to cover more than $5 million in benefits with respect to all such unallocated contracts. In no event shall the Association be obligated to cover (i) more than an aggregate of $350,000 in benefits with respect to any one life under subdivisions D 2 a, b, and c except with respect to benefits for basic hospital, medical and surgical insurance, and major medical insurance under subdivision D 2 a (2), in which case the aggregate liability of the Association shall not exceed $500,000 with respect to any one individual, or (ii) with respect to one owner of multiple nongroup policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than $5 million in benefits, regardless of the number of policies and contracts held by the owner. The limitations set forth in this subsection 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 chapter 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. In performing its obligations to provide coverage under §38.2-1704, the Association shall not be required to guarantee, assume, reinsure or perform, or cause to be guaranteed, assumed, reinsured or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that the Association has determined, with the concurrence of the Commission, do not materially affect the economic values or economic benefits of the covered policy or contract. §38.2-1701. Definitions. As used in this chapter: "Account" means any one of the "Association" means the Virginia Life, Accident and Sickness Insurance Guaranty Association created under §38.2-1702. "Authorized assessment" or the term "authorized" when used in the context of assessments means that a resolution by the board of directors has been passed whereby an assessment will be called immediately or in the future from member insurers for a specified amount. An assessment is authorized when the resolution is passed. "Benefit plan" means a specific employee, union, or association of natural persons benefit plan. "Called assessment" or the term "called" when used in the context of assessments means that a notice has been issued by the Association to member insurers requiring that an authorized assessment be paid within the time frame set forth within the notice. An authorized assessment becomes a called assessment when notice is mailed by the Association to member insurers. "Contractual obligation" means "Covered policy" means "Extra-contractual claims" shall include, for example, claims relating to bad faith in the payment of claims, punitive or exemplary damages, or attorney fees and costs. "Impaired insurer" means a "Insolvent insurer" means a member insurer that "Member insurer" means "Moody's Corporate Bond Yield Average" means the Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto. "Owner" of a policy or contract or "policy owner" and "contract owner" means the person who is identified as the legal owner under the terms of the policy or contract or who is otherwise vested with legal title to the policy or contract through a valid assignment completed in accordance with the terms of the policy or contract and properly recorded as the owner on the books of the insurer. The terms "owner," "contract owner," and "policy owner" do not include persons with a mere beneficial interest in a policy or contract. "Plan sponsor" means: (i) the employer, in the case of a benefit plan established or maintained by a single employer; (ii) the employee organization in the case of a benefit plan established or maintained by an employee organization; or (iii) in the case of a benefit plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the benefit plan. "Premiums" means "Principal place of business" of a plan sponsor or a person other than a natural person means the single state in which the natural persons who establish policy for the direction, control, and coordination of the operations of the entity as a whole primarily exercise that function, determined by the Association in its reasonable judgment by considering the following factors: (i) the state in which the primary executive and administrative headquarters of the entity is located; (ii) the state in which the principal office of the chief executive officer of the entity is located; (iii) the state in which the board of directors (or similar governing person or persons) of the entity conducts the majority of its meetings; (iv) the state from which the management of the overall operations of the entity is directed; and in the case of a benefit plan sponsored by affiliated companies comprising a consolidated corporation, the state in which the holding company or controlling affiliate has its principal place of business as determined using these factors. However, in the case of a plan sponsor, if more than 50 percent of the participants in the benefit plan are employed in a single state, that state shall be deemed to be the principal place of business of the plan sponsor. The principal place of business of a plan sponsor described in clause (iii) of the definition of plan sponsor in this section shall be deemed to be the principal place of business of the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the benefit plan that, in lieu of a specific or clear designation of a principal place of business, shall be deemed to be the principal place of business of the employer or employee organization that has the largest investment in the benefit plan in question. "Receivership court" means the court in the insolvent or impaired insurer's state having jurisdiction over the conservation, rehabilitation, or liquidation of the insurer. "Resident" means "Structured settlement annuity" means an annuity purchased in order to fund periodic payments for a plaintiff or other claimant in payment for or with respect to personal injury or sickness suffered by the plaintiff or other claimant. "Supplemental contract" means a written agreement entered into for the distribution of proceeds under a life, health, or annuity policy or contract. "Unallocated annuity contract" means an annuity contract or group annuity certificate that is not issued to and owned by an individual or a trust created by an individual for the benefit of one or more individuals, except to the extent of any annuity benefits guaranteed to an individual or such a trust by an insurer under the contract or certificate. §38.2-1702. Association; creation; memberships; accounts; supervision. A. The Association is a nonprofit legal entity B. The Association shall come under the immediate supervision
of the Commission and shall be subject to the applicable provisions of the
insurance laws of §38.2-1703. Board of directors of Association. A. The board of directors of the Association shall consist of not less than five nor more than nine member insurers serving terms as established in the plan of operation. The members of the board shall be selected by member insurers subject to the approval of the Commission. Vacancies on the board shall be filled for the remainder of the term by a majority vote of the remaining board members, subject to the approval of the Commission. B. In approving selections C. Members of the board may be reimbursed from the assets of the Association for expenses incurred by them as members of the board of directors but members of the board shall not be otherwise compensated by the Association for their services. §38.2-1704. Powers and duties of Association. In addition to the powers and duties enumerated in other sections of this chapter: A. 1. Guarantee, assume, or reinsure, or cause to be
guaranteed, assumed, or reinsured, any or all of the 2. Provide moneys, pledges, loans, notes, guarantees or
other means
B. 1. a. Guarantee, assume, or reinsure or cause to be
guaranteed, assumed, or reinsured the covered policies of the insolvent insurer
2. Provide benefits and coverages in accordance with the following provisions: a. With respect to life and health insurance policies and annuities, assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability, that would have been payable under the policies or contracts of the insolvent insurer, for claims incurred: (1) With respect to group policies and contracts, not later than the earlier of the next renewal date under those policies or contracts or 45 days, but in no event less than 30 days, after the date on which the Association becomes obligated with respect to the policies and contracts; (2) With respect to nongroup policies, contracts, and annuities, not later than the earlier of the next renewal date, if any, under the policies or contracts or one year, but in no event less than 30 days, from the date on which the Association becomes obligated with respect to the policies or contracts; b. Make diligent efforts to provide all known insureds or annuitants (for nongroup policies and contracts), or group policy owners with respect to group policies and contracts, 30 days' notice of the termination, pursuant to subdivision 2 a, of the benefits provided; c. With respect to nongroup life and health insurance policies and annuities covered by the Association, make available to each known insured or annuitant, or owner if other than the insured or annuitant, and with respect to an individual formerly insured or formerly an annuitant under a group policy who is not eligible for replacement group coverage, make available substitute coverage on an individual basis in accordance with the provisions of subdivision 2 d, if the insureds or annuitants had a right under law or the terminated policy or annuity to convert coverage to individual coverage or to continue an individual policy or annuity in force until a specified age or for a specified time, during which the insurer had no right unilaterally to make changes in any provision of the policy or annuity or had a right only to make changes in premium by class; d. In providing the substitute coverage required under subdivision 2 c, the Association may offer either to reissue the terminated coverage or to issue an alternative policy. Alternative or reissued policies shall be offered without requiring evidence of insurability, and shall not provide for any waiting period or exclusion that would not have applied under the terminated policy. The Association may reinsure any alternative or reissued policy; e. Alternative policies adopted by the Association shall be subject to the approval of the domiciliary insurance commissioner and the receivership court. The Association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency. Alternative policies shall contain at least the minimum statutory provisions required in this Commonwealth and provide benefits that shall not be unreasonable in relation to the premium charged. The Association shall set the premium in accordance with a table of rates that it shall adopt. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but shall not reflect any changes in the health of the insured after the original policy was last underwritten. Any alternative policy issued by the Association shall provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the Association; f. If the Association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the Association in accordance with the amount of insurance provided and the age and class of risk, subject to approval of the domiciliary insurance commissioner and the receivership court; g. The Association's obligations with respect to coverage under any policy of the impaired or insolvent insurer or under any reissued or alternative policy shall cease on the date the coverage or policy is replaced by another similar policy by the policy owner, the insured or the Association; and h. When proceeding under subdivision B 2 with respect to a policy or contract carrying guaranteed minimum interest rates, the Association shall assure the payment or crediting of a rate of interest consistent with subdivision C 2 c of §38.2-1700. C. Nonpayment of premiums within 31 days after the date required under the terms of any guaranteed, assumed, alternative, or reissued policy or contract or substitute coverage shall terminate the Association's obligations under the policy or coverage under this chapter with respect to the policy or coverage, except with respect to any claims incurred or any net cash surrender value that may be due in accordance with the provisions of this chapter. D. Premiums due for coverage after entry of an order of liquidation of an insolvent insurer shall belong to and be payable at the direction of the Association. If the liquidator of an insolvent insurer requests, the Association shall provide a report to the liquidator regarding such premium collected by the Association. The Association shall be liable for unearned premiums due to policy or contract owners arising after the entry of the order.
1. Subject to approval by the Commission, impose
permanent policy
2. G. A deposit in this Commonwealth, held pursuant to law or required by the Commission for the benefit of creditors, including policy owners, not turned over to the domiciliary liquidator upon the entry of a final order of liquidation or order approving a rehabilitation plan of an insurer domiciled in this Commonwealth or in a reciprocal state, pursuant to Article 7 (§38.2-1045 et seq.) of Chapter 10 shall be promptly paid to the Association. The Association shall be entitled to retain a portion of any amount so paid to it equal to the percentage determined by dividing the aggregate amount of policy owners' claims related to that insolvency for which the Association has provided statutory benefits by the aggregate amount of all policy owners' claims in this Commonwealth related to that insolvency and shall remit to the domiciliary receiver the amount so paid to the Association less the amount retained pursuant to this subsection. Any amount so paid to the Association and retained by it shall be treated as a distribution of estate assets pursuant to applicable state receivership law dealing with early access disbursements.
2. The subrogation rights of the Association under this subsection shall have the same priority against the assets of the insolvent insurer as that possessed by the person entitled to receive benefits under this chapter. 3. In addition to the rights provided by subdivisions K 1 and K 2, the Association shall have all common law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired or insolvent insurer or owner, beneficiary, or payee of a policy or contract with respect to the policy or contract, including, in the case of a structured settlement annuity, any rights of the owner, beneficiary, or payee of the annuity, to the extent of benefits received pursuant to this chapter, against a person originally or by succession responsible for the losses arising from the personal injury relating to the annuity or payment therefor, excepting any such person responsible solely by reason of serving as an assignee in respect of a qualified assignment under §130 of the Internal Revenue Code. 4. If subdivision K 1 through K 3 are invalid or ineffective with respect to any person or claim for any reason, the amount payable by the Association with respect to the related covered obligations shall be reduced by the amount realized by any other person with respect to the person or claim that is attributable to the policies, or portion thereof, covered by the Association. 5. If the Association has provided benefits with respect to a covered obligation and a person recovers amounts to which the Association has rights as described in subdivisions K 1 through K 4, the person shall pay to the Association the portion of the recovery attributable to the policies, or portion thereof, covered by the Association.
1. Enter into such contracts as are necessary or
proper to 2. Sue or be sued, including taking any legal actions
necessary or proper 3. Borrow money to effect the purposes of this chapter. Any
notes or other evidence of indebtedness of the Association not in default shall
be Category 1 investments, as defined in §38.2-1401, for domestic insurers 4. Employ or retain such persons as are necessary
or appropriate to handle the financial transactions of the Association, and
to perform other functions 5. Negotiate and contract with any liquidator, rehabilitator,
conservator, or ancillary receiver to carry out the powers and duties of the
Association 6. Take such legal action 7. Exercise, for the purposes of this chapter and to the
extent approved by the Commission, the powers of a domestic life or accident
and sickness insurer, but in no case 8. Organize itself as a corporation or in other legal form permitted by the laws of the Commonwealth; 9. Request information from a person seeking coverage from the Association in order to aid the Association in determining its obligations under this chapter with respect to the person, and the person shall promptly comply with the request; and 10. Take other necessary or appropriate action to discharge its duties and obligations under this chapter or to exercise its powers under this chapter. M. The Association may join an organization of one or more other state associations of similar purposes, to further the purposes and administer the powers and duties of the Association. N. 1. a. At any time within 180 days of the date of the order of liquidation, the Association may elect to succeed to the rights and obligations of the ceding member insurer that relate to policies or annuities covered, in whole or in part, by the Association, in each case under any one or more reinsurance contracts entered into by the insolvent insurer and its reinsurers and selected by the Association. Any such assumption shall be effective as of the date of the order of liquidation. The election shall be effected by the Association or any agent of the Association on the Association's behalf sending written notice, return receipt requested, to the affected reinsurers. b. To facilitate the earliest practicable decision about whether to assume any of the contracts of reinsurance, and in order to protect the financial position of the estate, the receiver and each reinsurer of the ceding member insurer shall make available upon request to the Association or to any agent of the Association on the Association's behalf as soon as possible after commencement of formal delinquency proceedings (i) copies of in-force contracts of reinsurance and all related files and records relevant to the determination of whether such contracts should be assumed and (ii) notices of any defaults under the reinsurance contracts or any known event or condition which with the passage of time could become a default under the reinsurance contracts. c. The following shall apply to reinsurance contracts so assumed by the Association: (1) The Association shall be responsible for all unpaid premiums due under the reinsurance contracts for periods both before and after the date of the order of liquidation, and shall be responsible for the performance of all other obligations to be performed after the date of the order of liquidation, in each case which relate to policies or annuities covered, in whole or in part, by the Association. The Association may charge policies or annuities covered in part by the Association, through reasonable allocation methods, the costs for reinsurance in excess of the obligations of the Association and shall provide notice and an accounting of these charges to the liquidator; (2) The Association shall be entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods after the date of the order of liquidation and that relate to policies or annuities covered, in whole or in part, by the Association, provided that, upon receipt of any such amounts, the Association shall be obliged to pay to the beneficiary, under the policy or annuity on account of which the amounts were paid, a portion of the amount equal to the lesser of (i) the amount received by the Association and (ii) the excess of the amount received by the Association over the amount equal to the benefits paid by the Association on account of the policy or annuity less the retention of the insurer applicable to the loss or event; (3) Within 30 days following the Association's election (the election date), the Association and each reinsurer under contracts assumed by the Association shall calculate the net balance due to or from the Association under each reinsurance contract as of the election date with respect to policies or annuities covered, in whole or in part, by the Association, which calculation shall give full credit to all items paid by either 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 prior to the date of the order of liquidation, subject to any set-off for premiums unpaid for periods prior to the date, and the Association or reinsurer shall pay any remaining balance due the other, in each case within five days of the completion of the aforementioned calculation. Any disputes over the amounts due to either the Association or the reinsurer shall be resolved by arbitration pursuant to the terms of the affected reinsurance contract or, if the contract contains no arbitration clause, as otherwise provided by law. If the receiver has received any amounts due the Association pursuant to subdivision N 1 c (2), the receiver shall remit the same to the Association as promptly as practicable; and (4) If the Association or receiver, on the Association's behalf, within 60 days of the election date, pays the unpaid premiums due for periods both before and after the election date that relate to policies or annuities covered, in whole or in part, by the Association, the reinsurer shall not be entitled to terminate the reinsurance contracts for failure to pay premium insofar as the reinsurance contracts related to policies or annuities covered, in whole or in part, by the Association, and shall not be entitled to set off any unpaid amounts due under other contracts, or unpaid amounts due from parties other than the Association, against amounts due the Association. 2. During the period from the date of the order of liquidation until the election date (or, if the election date does not occur, until 180 days after the date of the order of liquidation), a. Neither the Association nor the reinsurer shall have any rights or obligations under reinsurance contracts that the Association has the right to assume under subdivision N 1, whether for periods prior to or after the date of the order of liquidation; and the reinsurer, the receiver, and the Association shall, to the extent practicable, provide each other data and records reasonably requested; b. Provided that once the Association has elected to assume a reinsurance contract, the parties' rights and obligations shall be governed by subdivision N 1. 3. If the Association does not elect to assume a reinsurance contract by the election date pursuant to subdivision N 1, the Association shall have no rights or obligations, in each case for periods both before and after the date of the order of liquidation, with respect to the reinsurance contract. 4. When policies or annuities, or covered obligations with respect thereto, are transferred to an assuming insurer, reinsurance on the policies or annuities may also be transferred by the Association, in the case of contracts assumed under subdivision N 1, subject to the following: a. Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract transferred shall not cover any new policies of insurance or annuities in addition to those transferred; b. The obligations described in subdivision N 1 shall no longer apply with respect to matters arising after the effective date of the transfer; and c. Notice shall be given in writing, return receipt requested, by the transferring party to the affected reinsurer not less than 30 days prior to the effective date of the transfer. 5. The provisions of this subsection shall supersede the provisions of any law or of any affected reinsurance contract that provides for or requires any payment of reinsurance proceeds, on account of losses or events that occur in periods after the date of the order of liquidation, to the receiver of the insolvent insurer or any other person. The receiver shall remain entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods prior to the date of the order of liquidation, subject to applicable setoff provisions. 6. Except as otherwise provided in this section, nothing in this subsection shall alter or modify the terms and conditions of any reinsurance contract. Nothing in this section shall abrogate or limit any rights of any reinsurer to claim that it is entitled to rescind a reinsurance contract. Nothing in this section shall give a policy holder or beneficiary an independent cause of action against a reinsurer that is not otherwise set forth in the reinsurance contract. Nothing in this section shall limit or affect the Association's rights as a creditor of the estate against the assets of the estate. Nothing in this section shall apply to reinsurance agreements covering property or casualty risks. O. The board of directors of the Association shall have discretion and may exercise good faith business judgment to determine the means by which the Association is to provide the benefits of this chapter in an economical and efficient manner. P. Where the Association has arranged or offered to provide the benefits of this chapter to a covered person under a plan or arrangement that fulfills the Association's obligations under this chapter, the person shall not be entitled to benefits from the Association in addition to or other than those provided under the plan or arrangement. Q. Venue in a suit against the Association arising under this chapter shall be in the circuit court of the city or county in which the Association has its principal place of business except that any suit to which the Commission is a party shall be brought before the Commission. The Association shall not be required to give an appeal bond in an appeal that relates to a cause of action arising under this chapter. R. In carrying out its duties in connection with guaranteeing, assuming, or reinsuring policies or contracts under subsection A or B, the Association may, subject to approval of the receivership court, issue substitute coverage for a policy or contract that provides an 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 by issuing an alternative policy or contract in accordance with the following provisions: 1. In lieu of the index or other external reference provided for in the original policy or contract, the alternative policy or contract provides for (i) a fixed interest rate, (ii) payment of dividends with minimum guarantees, or (iii) a different method for calculating interest or changes in value; 2. There is no requirement for evidence of insurability, waiting period, or other exclusion that would not have applied under the replaced policy or contract; and 3. The alternative policy or contract is similar to the replaced policy or contract in all other material terms. §38.2-1705. Assessments. A. For the purpose of providing the funds necessary to carry
out the powers and duties of the Association, the board of directors shall
assess the member insurers, separately for each account, at B. There shall be two classes of assessments, as follows: 1. Class A assessments shall be 2. Class B assessments shall be C. 1. The amount of any Class A assessment shall be determined
by the board and may be 2. Class B assessments against member insurers for each
account and subaccount shall be in the proportion that the premiums
received on business in this Commonwealth by each assessed member insurer on
policies or contracts covered by each account and subaccount for the
three most recent calendar years for which information is available preceding
the year in which the insurer became 3. Assessments for funds to meet the requirements of the
Association with respect to an impaired or insolvent insurer shall not be D. The Association may abate or defer, in whole or in part, the assessment of a member insurer if, in the opinion of the board, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations. In the event an assessment against a member insurer is abated or deferred in whole or in part, the amount by which the assessment is abated or deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this section. Once the conditions that caused a deferral have been removed or rectified, the member insurer shall pay all assessments that were deferred pursuant to a repayment plan approved by the Association. E. b. If two or more assessments are authorized in one calendar year with respect to insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage limitation referenced in subdivision E 1 a shall be equal and limited to the higher of the three-year average annual premiums for the applicable subaccount or account as calculated pursuant to this section. c. If the maximum assessment, together with the other
assets of the Association in 2. The board may provide in the plan of operation a method of allocating funds among claims, whether relating to one or more impaired or insolvent insurers, when the maximum assessment will be insufficient to cover anticipated claims. 3. If the maximum assessment for a subaccount of the life and annuity account in one year does not provide an amount sufficient to carry out the responsibilities of the Association, then pursuant to subdivision C 2, the board shall access the other subaccounts of the life and annuity account for the necessary additional amount, subject to the maximum stated in subdivision E 1. F. The board, by an equitable method as established in the
plan of operation, may refund to member insurers, in proportion to the
contribution of each insurer to that account, the amount by which the
assets of the account exceed the amount the board finds is necessary to G. It shall be proper for any member insurer, in
determining its premium rates and policy owner dividends as to any kind of
insurance within the scope of this chapter, to consider the amount
reasonably necessary to meet its H. The Association shall issue to each insurer paying an
assessment under this chapter, other than a Class A assessment, a certificate
of contribution, in a form prescribed by the Commission, for the amount
of the assessment so paid I. 1. A member insurer that wishes to protest all or part of an assessment shall pay when due the full amount of the assessment as set forth in the notice provided by the Association. The payment shall be available to meet Association obligations during the pendency of the protest or any subsequent appeal. Payment shall be accompanied by a statement in writing that the payment is made under protest and setting forth a brief statement of the grounds for the protest. 2. Within 60 days following the payment of an assessment under protest by a member insurer, the Association shall notify the member insurer in writing of its determination with respect to the protest unless the Association notifies the member insurer that additional time is required to resolve the issues raised by the protest. 3. Within 30 days after a final decision has been made, the Association shall notify the protesting member insurer in writing of that final decision. Within 60 days of receipt of notice of the final decision, the protesting member insurer may appeal that final action to the Commission. 4. In the alternative to rendering a final decision with respect to a protest based on a question regarding the assessment base, the Association may refer the protest to the Commission for a final decision, with or without a recommendation from the Association. 5. If the protest or appeal on the assessment is upheld, the amount paid in error or excess shall be returned to the member company. Interest on a refund due a protesting member shall be paid at the rate actually earned by the Association. J. The Association may request information of member insurers in order to aid in the exercise of its power under this section and member insurers shall promptly comply with a request. §38.2-1706. Plan of operation. A. 1.
B. All member insurers shall comply with the plan of operation. C. The plan of operation shall, in addition to requirements enumerated elsewhere in this chapter: 1. Establish procedures for handling assets of the Association 2. Establish the amount and method of reimbursing members of
the board of directors under §38.2-1703 3. Establish regular places and times for meetings,
including telephone conference calls, of the board of directors 4. Establish procedures 5. Establish the procedures 6. Establish any additional procedures for assessments under §
38.2-1705 7. Establish a plan for equitable distribution of refunds to
members 8. Contain additional provisions necessary or proper for the
execution of the powers and duties of the Association 9. Establish procedures whereby a director may be removed for cause, including in the case where a member insurer director becomes an impaired or insolvent insurer; and 10. Require the board of directors to establish a policy and procedures for addressing conflicts of interests. D. §38.2-1707. Duties and powers of the Commission. A. In addition to the duties and powers enumerated elsewhere in this chapter, the Commission shall: 1. Upon request of the board of directors, provide the
Association with a statement of the premiums in the appropriate states for each
member insurer 2. When an impairment is declared and the amount of the
impairment is determined, serve a demand upon the impaired insurer to make good
the impairment within a reasonable time. Notice to the impaired insurer shall
constitute notice to its shareholders, if any. The failure of the insurer to
promptly comply with this demand shall not excuse the Association from the
performance of its powers and duties under this chapter 3. Be appointed as the liquidator or rehabilitator in any liquidation or rehabilitation proceeding involving a domestic insurer. If a foreign or alien member insurer is subject to a liquidation proceeding in its domiciliary jurisdiction or state of entry, the Commission shall be appointed conservator. B. The Commission may suspend or revoke, after notice and hearing, the license to transact the business of insurance in this Commonwealth of any member insurer that fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative the Commission may levy a forfeiture on any member insurer that fails to pay an assessment when due. The forfeiture shall not exceed five percent of the unpaid assessment per month, but no forfeiture shall be less than $100 per month. C. Any action of the board of directors or the Association may
be appealed to the Commission by any member insurer if the appeal is taken
within D. The liquidator, rehabilitator, or conservator of any impaired or insolvent insurer may notify all interested persons of the effect of this chapter. §38.2-1708. Detection and prevention of insolvencies. A. To aid in the detection and prevention of insurer insolvencies, the Commission shall have the duty to: 1. Notify the insurance departments of all of the other states
within a. Revocation of license; b. Suspension of license; or c. 2. Report to the board of directors when 3. Report to the board of directors when 4. Furnish to the board of directors the National Association of Insurance Commissioners (NAIC) Insurance Regulatory Information System (IRIS) ratios and listings of companies not included in the ratios developed by the NAIC, and the board may use the information contained therein in carrying out its duties and responsibilities under this section. The report and the information contained therein shall be kept confidential by the board of directors until such time as made public by the Commission or other lawful authority. B. The Commission may seek the advice and recommendations of
the board of directors concerning any matter affecting its duties and
responsibilities regarding the financial condition of member insurers and
insurers seeking admission to transact the business of insurance in C. The board of directors may, upon majority vote, make reports and recommendations to the Commission upon any matter germane to the solvency, liquidation, rehabilitation or conservation of any member insurer or germane to the solvency of any insurer seeking to transact the business of insurance in this Commonwealth. These reports and recommendations shall not be considered public documents. D. The board of directors E. The board of directors, upon majority vote, may
§38.2-1709. Tax write-offs of certificates of contributions. A. A member insurer shall have at its option the right to show
a certificate of contribution as an asset in the form approved by the
Commission pursuant to subsection H of §38.2-1705 at the original face amount
for the calendar year of issuance. Such amount
B. The insurer may offset the amount of the certificate
amortized in a calendar year as provided in subsection A. This amount shall be
deducted from the premium tax liability incurred on business transacted in this
Commonwealth for that year. However, the Association shall diligently pursue all
rights available to it to recover its expenditures made in the fulfillment of
its responsibilities under this chapter. C. Any sums for which a certificate of contribution has been issued that have been (i) amortized by contributing insurers and offset against premium taxes as provided in subsection B and (ii) subsequently refunded pursuant to subsection F of §38.2-1705 shall be paid to the Commission and deposited with the State Treasurer for credit to the general fund of this Commonwealth. D. The amount of any credit against premium taxes provided for in this section for an insurer shall be reduced by the amount of reduction in federal income taxes for any deduction claimed by the insurer for an assessment paid pursuant to this chapter. §38.2-1710. Miscellaneous provisions. A. Nothing in this chapter shall be construed to reduce the liability for unpaid assessments of the insureds on an impaired or insolvent insurer operating under a plan with assessment liability. B. Records shall be kept of all C. For the purpose of carrying out its obligations under this
chapter, the Association shall be deemed to be a creditor of the impaired or
insolvent insurer to the extent of assets attributable to covered policies and
contracts reduced by any amounts to which the Association is entitled as
subrogee pursuant to subsection D. As a creditor of the impaired or insolvent insurer as established in subsection C and consistent with subsection B of §38.2-1509, the Association and other similar associations shall be entitled to receive a disbursement of assets out of the marshaled assets, from time to time as the assets become available to reimburse it, as a credit against contractual obligations under this chapter. If the liquidator has not, within 120 days of a final determination of insolvency of an insurer by the receivership court, made an application to the court for the approval of a proposal to disburse assets out of marshaled assets to guaranty associations having obligations because of the insolvency, then the Association shall be entitled to make application to the receivership court for approval of its own proposal to disburse these assets. E. 1. Prior to the termination of any liquidation,
rehabilitation, or conservation proceeding, the court, in making an equitable
distribution of the ownership rights of the insolvent insurer, may take into
consideration the contributions of the respective parties, including the
Association, the shareholders, and 2. No distribution to any stockholders, if any, of an
impaired or insolvent insurer shall be made until and unless the total
amount of valid claims
2. No 3. Any person who was an affiliate that controlled the insurer
at the time the distributions were paid shall be liable up to the amount of
distributions 4. The maximum amount recoverable under this subsection shall be the amount in excess of all other available assets of the insolvent insurer needed to pay (i) the contractual obligations of the insolvent insurer and (ii) the reasonable expenses of the Association incurred in connection with the performance of its duties for the insolvent insurer. 5. If any person liable under subdivision 3 §38.2-1711. Examination of the Association; annual report. The Association shall be subject to examination and regulation by the Commission. The board of directors shall submit to the Commission, not later than each May 1, a financial report for the preceding calendar year in a form approved by the Commission and a report of its activities during the preceding calendar year. Upon the request of a member insurer, the Association shall provide the member insurer with a copy of the report. §38.2-1712. Tax exemptions. The Association shall be exempt from the payment of all fees
and all taxes levied by §38.2-1713. Immunity. There shall be no liability on the part of, and no cause of action of any nature shall arise against, any member insurer or its agents or employees, the Association or its agents or employees, members of the board of directors, or the Commission or its representatives, for any action taken by them in the performance of their powers and duties under this chapter. This immunity shall extend to the participation in any organization of one or more other state associations of similar purposes and to any such organization and its agents or employees. §38.2-1714. Stay of proceedings; reopening default judgments. All proceedings in which the insolvent insurer is a party in
any court in this Commonwealth shall be stayed §38.2-1715. Prohibited advertisement of Association coverage in insurance sales; notice to policy owners. A. No person, including an insurer, agent, or affiliate
of an insurer shall make, publish, disseminate, circulate, or place before the
public, or cause, directly or indirectly, to be made, published, disseminated,
circulated or placed before the public, in any newspaper, magazine or other
publication, or in the form of a notice, circular, pamphlet, letter or poster,
or over any radio station or television station, or in any other way, any
advertisement, announcement or statement B. By January 1, 2011, the Association shall prepare a summary document describing the general purposes and current limitations of this chapter and that complies with subsection C. This document shall be submitted to the Commission for approval. At the expiration of the sixtieth day after the date on which the Commission approves the document, an insurer may not deliver a policy or contract to a policy or contract owner unless the summary document is delivered to the policy or contract owner at the time of delivery of the policy or contract. The document shall also be available upon request by a policy or contract owner. The distribution, delivery, or contents or interpretation of this document does not guarantee that either the policy or the contract or the owner of the policy or contract is covered in the event of the impairment or insolvency of a member insurer. The summary document shall be revised by the Association as amendments to the chapter may require. Failure to receive this document does not give the policy owner, contract owner, certificate owner, certificate holder, or insured any greater rights than those stated in this chapter. C. The document prepared under subsection B shall contain a clear and conspicuous disclaimer on its face. The Commission shall establish the form and content of the disclaimer. The disclaimer shall: 1. State the name and address of the Association and the Bureau of Insurance; 2. Prominently warn the policy or contract owner that the Association may not cover the policy or contract or, if coverage is available, it will be subject to substantial limitations and exclusions and conditioned on continued residence in the Commonwealth; 3. State the types of policies for which guaranty funds will provide coverage; 4. State that the insurer and its agents are prohibited by law from using the existence of the Association for the purpose of sales, solicitation, or inducement to purchase any form of insurance; 5. State that the policy or contract owner should not rely on coverage under the Association when selecting an insurer; 6. Explain rights available and procedures for filing a complaint to allege a violation of any provisions of this chapter; and 7. Provide other information as directed by the Commission including but not limited to, sources for information about the financial condition of insurers provided that the information is not proprietary and is subject to disclosure under the Freedom of Information Act (§2.2-3700 et seq.). D. A member insurer shall retain evidence of compliance with subsection B for so long as the policy or contract for which the notice is given remains in effect. 2. That any member insurer, as defined in §38.2-1701 of the Code of Virginia, that has been placed by a court of competent jurisdiction under an order of liquidation, rehabilitation, or conservation pursuant to Chapter 15 (§38.2-1500 et seq.) of Title 38.2 of the Code of Virginia or equivalent statutes of the state in which the member insurer is domesticated, prior to July 1, 2010, shall be subject to the provisions of Chapter 17 (§ 38.2-1700 et seq.) of Title 38.2 of the Code of Virginia as that chapter existed prior to July 1, 2010. |
