By Counts H.B. No. 2960
Substitute the following for H.B. No. 2960:
By Counts C.S.H.B. No. 2960
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the liquidation of insolvent insurers, the Commissioner
1-3 of Insurance in his statutory capacity as Receiver, and the
1-4 insurance guaranty associations.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 14(c), Texas Title Insurance Guaranty act
1-7 (Article 9.48, Insurance Code), is amended to read as follows:
1-8 (c) Powers and duties of association. In addition to the
1-9 powers and duties provided by other sections of this article, the
1-10 association:
1-11 (1) may render assistance and advice to the
1-12 commissioner, upon his request, concerning rehabilitation, payment
1-13 of claims, continuation of coverage, or the performance of other
1-14 contractual obligations of any impaired insurer or agent;
1-15 (2) has standing to appear before any court in this
1-16 state with jurisdiction over an impaired insurer or agent
1-17 concerning which the association is or may become obligated under
1-18 this article;
1-19 (3) Each director of the association shall file a
1-20 financial statement with the Texas Ethics Commission in accordance
1-21 with Subchapter B, Chapter 572, Government Code <Sections 3 and 4,
1-22 Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973
1-23 (Article 6252-9b, Vernon's Texas Civil Statutes)>.
2-1 (4) may borrow funds as necessary to implement this
2-2 article in accordance with the plan of operation;
2-3 (5) may lend money to an impaired insurer;
2-4 (6) sue or be sued, including taking any legal actions
2-5 necessary or proper for recovery of any unpaid assessments;
2-6 (7) may enter into contracts as necessary or proper to
2-7 implement this article;
2-8 (8) may employ or retain such persons who are
2-9 necessary to handle the financial transactions of the association,
2-10 and to perform any other functions that become necessary or proper
2-11 under this article;
2-12 (9) may ensure payment of the policy obligations of an
2-13 impaired insurer;
2-14 (10) may negotiate and contract with any liquidator,
2-15 rehabilitator, conservator, receiver, or ancillary receiver to
2-16 carry out the powers and duties of the association;
2-17 (11) may guarantee, assume, or reinsure, or cause to
2-18 be guaranteed, assumed, or reinsured, a policy or contract of an
2-19 impaired insurer;
2-20 (12) may take legal action as necessary to avoid the
2-21 payment of improper claims, or to settle claims or potential claims
2-22 against the impaired insurer or association;
2-23 (13) shall, on the request of the commissioner,
2-24 authorize the expenditure of funds from the guaranty fee account to
2-25 retain, compensate, and reimburse for reasonable and necessary
3-1 expenses, a person or persons who will audit and review agent <and
3-2 insurer> escrow and trust accounts, financial condition, and
3-3 compliance with applicable statutes and rules and make reports
3-4 relating to the <those> accounts, agent financial condition, and
3-5 compliance to the commissioner, solely under the direction of and
3-6 as assigned by the commissioner;
3-7 (14) shall collect, receive, retain, and disburse the
3-8 income provided by Section 6 of this article solely for the
3-9 purposes, to the persons, and under the circumstances that are
3-10 specifically stated in this article; and
3-11 (15) may perform other acts as necessary or proper to
3-12 implement this article.
3-13 SECTION 2. Section 2, Article 21.28, Insurance Code, is
3-14 amended by amending Subsection (g) and adding Subsections (j) and
3-15 (k) to read as follows:
3-16 (g) Disposal of Property; Settling Claims. The receiver
3-17 may, subject to the approval of the court, (1) sell or otherwise
3-18 dispose of the real and personal property, or any part thereof, of
3-19 an insurer against whom a proceeding has been brought under this
3-20 Article, and (2) sell or compound all doubtful or uncollectible
3-21 debts, or claims owed by or owing to such insurer, including claims
3-22 based upon an assessment levied against a member of a mutual
3-23 insurer, reciprocal exchange, or an underwriter at Lloyds.
3-24 Whenever the amount of any such debt or claim owed by or owing to
3-25 such insurer or the value of any item of property of the insurer
4-1 does not exceed Ten Thousand Dollars ($10,000) <One Thousand
4-2 Dollars ($1,000)>, exclusive of interest, the receiver may
4-3 compromise or compound such debt or claim or sell such property
4-4 upon such terms as the receiver <he> may deem for the best
4-5 interests of said insurer without obtaining the approval of the
4-6 court. The receiver may, subject to the approval of the court,
4-7 sell or agree to sell, or offer to sell, any assets of such an
4-8 insurer to such of its creditors who may desire to participate in
4-9 the purchase thereof, to be paid for, in all or in part, out of
4-10 dividends payable to such creditors, and, upon the application of
4-11 the receiver, the court may designate representatives to act for
4-12 such creditors in the purchase, holding and/or management of such
4-13 assets, and the receiver may, subject to the approval of the court,
4-14 advance the expenses of such representatives against the security
4-15 of the claims of such creditors. The receiver may, subject to the
4-16 approval of the court and the commissioner, as required by this
4-17 code, sell or otherwise dispose of the charter or license of the
4-18 insurer separate and apart from its outstanding liabilities.
4-19 (j) Immunity. There is no liability on the part of, and a
4-20 cause of action does not arise against, the receiver, a special
4-21 deputy receiver, the commissioner, or an agent or employee of the
4-22 receiver, a special deputy receiver, or the commissioner for a good
4-23 faith action or failure to act in the performance of powers and
4-24 duties under this article.
4-25 (k) Representation by Attorney General. The attorney
5-1 general shall defend an action to which Subsection (j) of this
5-2 section applies that is brought against the receiver, a special
5-3 deputy receiver, the commissioner, or an agent or employee of the
5-4 receiver, a special deputy receiver, or the commissioner. This
5-5 subsection continues to apply to an action that is brought after
5-6 the defendant's service with the receiver, a special deputy
5-7 receiver, the commissioner, or the department has terminated or
5-8 after the close of the receivership out of which the action arises.
5-9 This subsection does not require the attorney general to defend any
5-10 person with respect to an issue other than the applicability or
5-11 effect of the judicial immunity codified by Subsection (j) of this
5-12 section.
5-13 SECTION 3. Section 8(a), Article 21.28, Insurance code, is
5-14 amended to read as follows:
5-15 (a) Priority of Distribution of Assets. The priority of
5-16 distribution of assets from the insurer's estate shall be in
5-17 accordance with the disbursement plan approved by the court
5-18 pursuant to Section 7A of this Article, and in accordance with the
5-19 order of each class as provided by this subsection. Every claim in
5-20 each class shall be paid in full or adequate funds retained for
5-21 such payment before the members of the next class receive any
5-22 payment. No subclasses shall be established within any class.
5-23 Class 1.
5-24 (1) All of the receiver's, conservator's, and
5-25 supervisor's costs and expenses of administration, including
6-1 repayment of funds advanced to the receiver from the abandoned
6-2 property fund of the State Board of Insurance.
6-3 (2) All of an insurance guaranty association's or
6-4 foreign insurance guaranty associations's costs and expenses of
6-5 administration related to a receivership estate and <A>all of the
6-6 expenses of an insurance guaranty association or foreign insurance
6-7 guaranty association in handling claims.
6-8 For the purpose of this subdivision, attorney's fees
6-9 incurred by an insurance guaranty association or foreign insurance
6-10 guaranty association in the defense of an insured under a policy
6-11 issued by an impaired insurer constitute an expense incurred in
6-12 handling claims.
6-13 (3) Wages owed to employees of the insurer as provided
6-14 for in Section 6 of this Article.
6-15 (4) Secured creditors to the extent of the value of
6-16 the security as provided by Section 8(c) of this Article.
6-17 Class 2.
6-18 (1) All claims by policyholders, beneficiaries,
6-19 insureds, and liability claims against insureds covered under
6-20 insurance policies and insurance contracts issued by the insurer.
6-21 (2) All claims by an insurance guaranty association or
6-22 a foreign insurance guaranty association that are payments of
6-23 proper policyholder claims.
6-24 Class 3.
6-25 All other claims of general creditors not falling within any
7-1 other priority under this section including claims for taxes and
7-2 debts due the federal government or any state or local government
7-3 which are not secured claims.
7-4 Class 4.
7-5 Claims of surplus or contribution note holders, holders of
7-6 debentures or holders of similar obligations and proprietary claims
7-7 of shareholders, members, or other owners according to the terms of
7-8 the instruments.
7-9 SECTION 4. Section 5(8), Texas Property and Casualty
7-10 Insurance Guaranty Act (Article 21.28-C, Insurance Code), is
7-11 amended to read as follows:
7-12 (8) "Covered claim" means an unpaid claim of an
7-13 insured or third-party liability claimant that arises out of and is
7-14 within the coverage and not in excess of the applicable limits of
7-15 an insurance policy to which this Act applies, issued or assumed
7-16 (whereby an assumption certificate is issued to the insured) by an
7-17 insurer licensed to do business in this state, if that insurer
7-18 becomes an impaired insurer and the third-party claimant or
7-19 liability claimant or insured is a resident of this state at the
7-20 time of the insured event, or the <property from which the> claim
7-21 <arises> is a first-party claim for damage to property that is
7-22 permanently located in this state. "Covered claim" shall also
7-23 include 75 percent of unearned premiums, but in no event shall a
7-24 covered claim for unearned premiums exceed $1,000. Individual
7-25 covered claims (including any and all derivative claims by more
8-1 than one person which arise from the same occurrence, which shall
8-2 be considered collectively as a single claim under this Act) shall
8-3 be limited to $100,000, except that the association shall pay the
8-4 full amount of any covered claim arising out of a workers'
8-5 compensation claim made under a workers' compensation policy.
8-6 "Covered claim" shall not include any amount sought as a return of
8-7 premium under a retrospective rating plan or any amount due any
8-8 reinsurer, insurer, insurance pool, or underwriting association, as
8-9 subrogation recoveries, reinsurance recoveries, contribution,
8-10 indemnification, or otherwise, and the insured of an impaired
8-11 insurer is not liable, and the insurer is not entitled to sue or
8-12 continue a suit against that insured, for any subrogation recovery,
8-13 reinsurance recovery, contribution, or indemnity asserted by a
8-14 reinsurer, insurer, insurance pool, or underwriting association to
8-15 the extent of the applicable liability limits of the policy written
8-16 and issued to the insured by the insolvent insurer. "Covered
8-17 claim" shall not include supplementary payment obligations,
8-18 including adjustment fees and expenses, attorney's fees and
8-19 expenses, court costs, interest and penalties, and interest and
8-20 bond premiums incurred prior to the determination that an insurer
8-21 is an impaired insurer under this Act. "Covered claim" shall not
8-22 include any prejudgment or postjudgment interest that accrues
8-23 subsequent to the determination that an insurer is an impaired
8-24 insurer under this Act. "Covered claim" shall not include any
8-25 claim for recovery of punitive, exemplary, extracontractual, or
9-1 bad-faith damages, whether sought as a recovery against the
9-2 insured, insurer, guaranty association, receiver, special deputy
9-3 receiver, or commissioner, awarded in a court judgment against an
9-4 insured or insurer. "Covered claim" shall not include, and the
9-5 association shall not have any liability to an insured or
9-6 third-party liability claimant, for its failure to settle a
9-7 liability claim within the limits of a covered claim under this
9-8 Act. With respect to a covered claim for unearned premiums, both
9-9 persons who were residents of this state at the time the policy was
9-10 issued and persons who are residents of this state at the time the
9-11 company is found to be an impaired insurer shall be considered to
9-12 have covered claims under this Act. If the impaired insurer has
9-13 insufficient assets to pay the expenses of administering the
9-14 receivership or conservatorship estate, that portion of the
9-15 expenses of administration incurred in the processing and payment
9-16 of claims against the estate shall also be a covered claim under
9-17 this Act.
9-18 SECTION 5. Section 7(a), Texas Property and Casualty
9-19 Insurance Guaranty Act (Article 21.28-C, Insurance Code), is
9-20 amended to read as follows:
9-21 (a) The board of directors of the association is composed of
9-22 nine persons who serve terms as established in the plan of
9-23 operation. Five members shall be selected by member insurers,
9-24 subject to the approval of the commissioner. To be eligible to
9-25 serve as an insurance industry board member, a person must be a
10-1 full-time employee of a member insurer. The remaining members
10-2 shall be representatives of the general public appointed by the
10-3 commissioner. Vacancies on the board shall be filled for the
10-4 remaining period of the term by a majority vote of the remaining
10-5 board members, subject to the approval of the commissioner.
10-6 SECTION 6. Section 8(b), Texas Property and Casualty
10-7 Insurance Guaranty Act (Article 21.28-C, Insurance Code), is
10-8 amended to read as follows:
10-9 (b) The association shall undertake to discharge the policy
10-10 obligations of the impaired insurer, including the duty to defend
10-11 insureds under a liability policy, to the extent that the policy
10-12 obligations are covered claims under this Act. In performing its
10-13 statutory obligations, the association may also enforce any duty
10-14 imposed on the insured party or beneficiary under the terms of any
10-15 policy of insurance within the scope of this Act. In performing
10-16 its statutory obligations under this Act, the association shall not
10-17 be considered to be in the business of insurance, shall not be
10-18 considered to have assumed or succeeded to any liabilities of the
10-19 impaired insurer, and shall not be considered to otherwise stand in
10-20 the shoes of the impaired insurer for any purpose, including the
10-21 issue of whether the association is amenable to the personal
10-22 jurisdiction of the courts of any other state. <The association is
10-23 considered the insurer to the extent of its obligation on the
10-24 covered claims and to that extent has all rights, duties, and
10-25 obligations of the impaired insurer as if the insurer had not
11-1 become impaired.>
11-2 SECTION 7. Section 12(a), Texas Property and Casualty
11-3 Insurance Guaranty Act (Article 21.28-C, Insurance Code), is
11-4 amended to read as follows:
11-5 (a) A person who has a claim against an insurer under any
11-6 provision in an insurance policy other than a policy of an impaired
11-7 insurer that is also a covered claim shall exhaust first the
11-8 person's rights under the policy, including any claim for indemnity
11-9 or medical benefits under any workers' compensation, health,
11-10 disability, uninsured motorist, personal injury protection, medical
11-11 payment, liability, or other policy, and the right to defense under
11-12 the policy. The association shall have a credit or setoff against
11-13 any amount of benefits which would otherwise be payable by the
11-14 association to the claimant under this Act, in the amount of the
11-15 claimant's recovery under any policy issued by an unimpaired
11-16 insurer. Subject to the provisions of Subsection (a-1) below, the
11-17 association's credit or setoff under this section shall be deducted
11-18 from damages incurred by the claimant, and the remaining sum shall
11-19 be the maximum amount payable by the association, except that the
11-20 association's liability shall not exceed $100,000 or the limits of
11-21 the policy under which the claim is made, whichever is less.
11-22 SECTION 8. Section 14, Texas Property and Casualty Insurance
11-23 Guaranty Act (Article 21.28-C, Insurance Code), is amended to read
11-24 as follows:
11-25 Sec. 14. EXAMINATION OF THE ASSOCIATION. Not later than
12-1 April <March> 30 of each year, the association shall submit an
12-2 audited financial statement to the state auditor for the preceding
12-3 calendar year in a form approved by the state auditor's office.
12-4 SECTION 9. Section 17, Texas Property and Casualty Insurance
12-5 Guaranty Act (Article 21.28-C, Insurance Code), is amended to read
12-6 as follows:
12-7 Sec. 17. Stay of proceedings. All proceedings in which an
12-8 impaired insurer is a party or is obligated to defend a party in
12-9 any court in this state, except proceedings directly related to the
12-10 receivership or instituted by the receiver, shall be stayed for six
12-11 months and any additional time thereafter as may be determined by
12-12 the court from the date of the designation of impairment or an
12-13 ancillary proceeding is instituted in the state, whichever is
12-14 later, to permit proper defense by the receiver or the association
12-15 of all pending causes of action. A deadline imposed under the
12-16 Texas Rules of Civil Procedure or the Texas Rules of Appellate
12-17 Procedure is tolled during the stay. The court in which the
12-18 delinquency proceeding is pending has exclusive jurisdiction
12-19 regarding the application, enforcement, and extension of the stay.
12-20 As to any covered claims arising from a judgment under any
12-21 decision, verdict, or finding based on the default of the impaired
12-22 insurer or its failure to defend an insured, the association either
12-23 on its own behalf or on behalf of the insured shall be entitled,
12-24 upon application, to have the judgment, order, decision, verdict,
12-25 or finding set aside by the same court or administrator that made
13-1 the judgment, order, decision, verdict, or finding and shall be
13-2 permitted to defend the claim on the merits. The receiver or
13-3 statutory successor of an impaired insurer covered by this Act
13-4 shall permit access by the board or its authorized representative
13-5 to records of the impaired insurer as are necessary for the board
13-6 in carrying out its functions under this Act with regard to covered
13-7 claims. In addition, the receiver or statutory successor shall
13-8 provide the board or its representative with copies of the records
13-9 on request of the board and at the expense of the board.
13-10 SECTION 10. Sections 18(b), (c), and (h), Texas Property and
13-11 Casualty Insurance Guaranty Act (Article 21.28-C, Insurance Code),
13-12 are amended to read as follows:
13-13 (b) If the board of directors determines that additional
13-14 funds are needed in any of the three accounts, it shall make
13-15 assessments as necessary to produce the necessary funds. The
13-16 association, in determining the proportionate amount to be paid by
13-17 individual insurers under an assessment, shall take into
13-18 consideration the lines of business written by the impaired insurer
13-19 and shall assess individual insurers in proportion to the ratio
13-20 that the total net direct written premium collected in this state
13-21 by the insurer for those lines of business bears to the total net
13-22 direct written premium collected by all insurers, other than
13-23 impaired insurers, in this state for those lines of business. The
13-24 association shall determine the total net direct written premium of
13-25 an individual insurer and for all insurers in the state from the
14-1 insurers' annual statements for the year preceding assessment.
14-2 Except as otherwise provided by this subsection, assessments
14-3 <Assessments> under this subsection during a calendar year may be
14-4 made up to, but not in excess of, two percent of each insurer's net
14-5 direct written premium for the preceding calendar year in the lines
14-6 of business for which the assessments are being made. In the event
14-7 of a natural disaster or other catastrophic event, the association
14-8 may apply to the governor in the manner prescribed by the plan of
14-9 operation, for authority to assess each member insurer that writes
14-10 insurance coverage, other than motor vehicle coverage or workers'
14-11 compensation coverage, an additional amount not to exceed two
14-12 percent of the insurer's net direct written premiums for the
14-13 preceding calendar year. If the maximum assessment in any calendar
14-14 year does not provide an amount sufficient for payment of covered
14-15 claims of impaired insurers, assessments may be made in the next
14-16 and successive calendar years.
14-17 (c) It shall be the duty of each insurer to pay the amount
14-18 of an assessment under Subsection (b) of this section to the
14-19 association not later than the 30th day after the association
14-20 <commissioner> gives notice of the assessment.
14-21 (h) Notwithstanding Subsection (b) of this section, the
14-22 association may assess the workers' compensation line of business
14-23 during a calendar year not more than three percent of each
14-24 insurer's net direct written premium for the preceding calendar
14-25 year for assessments made on or before December 31, 1997 <1995>.
15-1 An assessment under this subsection may be made only if the
15-2 association finds that the assessment is necessary to meet the
15-3 obligations of the association. This subsection expires January 1,
15-4 1998 <1996>.
15-5 SECTION 11. This Act takes effect September 1, 1995, and
15-6 applies only to a liquidation or receivership of an impaired
15-7 insurer that is begun on or after that date.
15-8 SECTION 12. The importance of this legislation and the
15-9 crowded condition of the calendars in both houses create an
15-10 emergency and an imperative public necessity that the
15-11 constitutional rule requiring bills to be read on three several
15-12 days in each house be suspended, and this rule is hereby suspended.