By Counts 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. Paragraph (a) of Section 8, Article 21.28,
1-7 Insurance Code, is amended to read as follows:
1-8 (a) Priority of Distribution of Assets. The priority of
1-9 distribution of assets from the insurer's estate shall be in
1-10 accordance with the disbursement plan approved by the court
1-11 pursuant to Section 7A of this Article, and in accordance with the
1-12 order of each class as provided by this subsection. Every claim in
1-13 each class shall be paid in full or adequate funds retained for
1-14 such payment before the members of the next class receive any
1-15 payment. No subclasses shall be established within any class.
1-16 Class 1.
1-17 (1) All of the receiver's, conservator's, and supervisor's
1-18 costs and expenses of administration, including repayment of funds
1-19 advanced to the receiver from the abandoned property fund of the
1-20 State Board of Insurance.
1-21 (2) All of an insurance guaranty association's or foreign
1-22 insurance guaranty association's costs and expense of
1-23 administration allocated to receivership estate and <A>all of the
2-1 expenses of an insurance guaranty association or foreign insurance
2-2 guaranty association in handling claims. For the purpose of this
2-3 section, attorneys fees incurred by an insurance guaranty
2-4 association or foreign insurance guaranty association in the
2-5 defense of insureds under policies issued by impaired insurers
2-6 shall be considered expense in handling claims.
2-7 (3) Wages owed to employees of the insurer as provided for
2-8 in Section 6 of this Article.
2-9 (4) Secured creditors to the extent of the value of the
2-10 security as provided by Section 8(c) of this Article.
2-11 Class 2.
2-12 (1) All claims by policyholders, beneficiaries, insureds,
2-13 and liability claims against insureds covered under insurance
2-14 policies and insurance contracts issued by the insurer.
2-15 (2) All claims by an insurance guaranty association or a
2-16 foreign insurance guaranty association that are payments of proper
2-17 policyholder claims.
2-18 Class 3.
2-19 All other claims of general creditors not falling within any
2-20 other priority under this section including claims for taxes and
2-21 debts due the federal government or any state or local government
2-22 which are not secured claims.
2-23 Class 4.
2-24 Claims of surplus or contribution note holders, holders of
2-25 debentures or holders of similar obligations and proprietary claims
3-1 of shareholders, members, or other owners according to the terms of
3-2 the instruments.
3-3 SECTION 2. Paragraph (8) of Section 5, Article 21.28-C,
3-4 Insurance Code, is amended to read as follows:
3-5 (8) "Covered claim" means an unpaid claim of an insured or
3-6 third-party liability claimant that arises out of and is within the
3-7 coverage and not in excess of the applicable limits of an insurance
3-8 policy to which this Act applies, issued or assumed (whereby an
3-9 assumption certificate is issued to the insured) by an insurer
3-10 licensed to do business in this state, if that insurer becomes an
3-11 impaired insurer and the third-party claimant or liability claimant
3-12 or insured is a resident of this state at the time of the insured
3-13 event, or <the property from which the claim arises is permanently
3-14 located in this state> the claim is a first party claim for damage
3-15 to property with a permanent location in this state. "Covered
3-16 claim" shall also include <75 percent of unearned premiums, but in
3-17 no event shall a covered claim for unearned premiums exceed $1,000>
3-18 an amount not exceeding $10,000 per policy for a covered claim for
3-19 the return of unearned premium. All covered claims less than or
3-20 equal to $25.00 must be specifically requested in writing.
3-21 Individual covered claims (including any and all derivative claims
3-22 by more than one person which arise from the same occurrence, which
3-23 shall be considered collectively as a single claim under this Act)
3-24 shall be limited to $100,000, except that the association shall pay
3-25 the full amount of any covered claim arising out of a workers'
4-1 compensation claim made under a workers' compensation policy.
4-2 "Covered claim" shall not include any amount sought as a return of
4-3 premium under a retrospective rating plan; or any amount due any
4-4 reinsurer, insurer, insurance pool, or underwriting association, as
4-5 subrogation recoveries, reinsurance recoveries, contribution,
4-6 indemnification or otherwise. In addition, the insured of an
4-7 impaired insurer shall likewise not be liable, and the insurer
4-8 shall not be entitled to sue or continue a suit against the insured
4-9 of the impaired insurer, for any subrogation recovery, reinsurance
4-10 recovery, contribution or indemnity asserted by any reinsurer,
4-11 insurer, insurance pool, or underwriting association to the extent
4-12 of the applicable liability limits previously provided to such
4-13 insured by the insolvent insurer. "Covered claim" shall not
4-14 include supplementary payment obligations, including adjustment
4-15 fees and expenses, attorney's fees and expenses, court costs,
4-16 interest and penalties, and interest and bond premiums incurred
4-17 prior to the determination that an insurer is an impaired insurer
4-18 under this Act. "Covered claim" shall not include any prejudgment
4-19 or postjudgment interest which accrues subsequent to the
4-20 determination that an insurer is an impaired insurer under this
4-21 Act. "Covered claim" shall not include any claim for recovery of
4-22 punitive, exemplary, extracontractual, or bad-faith damages,
4-23 whether sought as a recovery against the insured, insurer, guaranty
4-24 association, receiver, special deputy receiver or commissioner,
4-25 awarded in a court-judgment against an insured or insurer.
5-1 "Covered claim" shall not include, and the association shall not
5-2 have any liability to an insured or third-party liability claimant,
5-3 for its failure to settle a liability claim within the limits of a
5-4 covered claim under this Act. With respect to a covered claim for
5-5 unearned premiums, both persons who were residents of this state at
5-6 the time the policy was issued and persons who are residents of
5-7 this state at the time the company is found to be an impaired
5-8 insurer shall be considered to have covered claims under this Act.
5-9 If the impaired insurer has insufficient assets to pay the expenses
5-10 of administering the receivership or conservatorship estate, the
5-11 portion of the expenses of administration incurred in the
5-12 processing and payment of claims against the estate shall also be a
5-13 covered claim under this Act.
5-14 SECTION 3. Paragraph (a) of Section 7, Article 21.28-C,
5-15 Insurance Code, is amended to read as follows:
5-16 (a) The board of directors of the association is composed of
5-17 nine persons who serve terms as established in the plan of
5-18 operation. Five members shall be selected by member insurers,
5-19 subject to the approval of the commissioner. To be eligible to
5-20 serve as an industry board member, a person must be a full-time
5-21 employee of a member insurer. The remaining members shall be
5-22 representative of the general public appointed by the commissioner.
5-23 Vacancies on the board shall be filled for the remaining period of
5-24 the term by a majority vote of the remaining board members, subject
5-25 to the approval of the commissioner.
6-1 SECTION 4. Paragraph (b) of Section 8, Article 21.28-C,
6-2 Insurance Code, is amended to read as follows:
6-3 The association shall undertake to discharge the policy
6-4 obligations of the impaired insurer, including the duty to defend
6-5 insureds under a liability policy, to the extent that such policy
6-6 obligations are covered claims under this Act. In performing its
6-7 statutory obligations, the association may also enforce any duty
6-8 imposed on the insured party or beneficiary under the terms of any
6-9 policy of insurance within the scope of this Act. In performing
6-10 its statutory obligations under this Act, the association shall not
6-11 be considered to be in the business of insurance, shall not be
6-12 considered to have assumed or succeeded to any liabilities of the
6-13 impaired insurer, and shall not be considered to otherwise stand in
6-14 the shoes of the impaired insurer for any purpose, including but
6-15 not limited to the issue of whether the association is amenable to
6-16 the personal jurisdiction of the Courts of any other State. <The
6-17 association is considered the insurer to the extent of its
6-18 obligation on the covered claims and to that extent has all rights,
6-19 duties, and obligations of the impaired insurer as if the insurer
6-20 had not become impaired.>
6-21 SECTION 5. Paragraph (d) of Section 8, Article 21.28-C,
6-22 Insurance Code, is amended to read as follows:
6-23 (d) The association shall investigate adjust, compromise,
6-24 settle, and pay covered claims to the extent of the association's
6-25 obligation and deny all other claims. The association shall have
7-1 the right to appoint and to direct legal counsel retained under
7-2 liability insurance policies for the defense of covered claims.
7-3 The association may review settlements, releases, and judgments to
7-4 which the impaired insurer or its insureds were parties to
7-5 determine the extent to which those settlements, releases, and
7-6 judgments may be properly contested. Any judgment taken by default
7-7 or consent against an insured or the impaired insurer, and any
7-8 settlement, release or judgment entered into by the insured or the
7-9 impaired insurer, shall not be considered to be binding upon the
7-10 association, and shall not be considered as evidence of liability
7-11 or of damages in connection with any claim brought against the
7-12 association or any other party under this Act.
7-13 Notwithstanding any other provision of this Act, a covered
7-14 claim shall not include any claim filed with the guaranty
7-15 association after the later of the final date for filing claims
7-16 against the liquidator or receiver of an insolvent insurer, or
7-17 eighteen months after the order of liquidation.
7-18 SECTION 6. Paragraph (a) of Section 12, Article 21.28-C,
7-19 Insurance Code, is amended to read as follows:
7-20 A person who has a claim against an insurer under any
7-21 provision in an insurance policy other than a policy of an impaired
7-22 insurer that is also a covered claim shall exhaust first the
7-23 person's rights under the policy, including but not limited to any
7-24 claim for indemnity or medical benefits under any workers'
7-25 compensation, health, disability, uninsured motorist, personal
8-1 injury protection, medical payment, liability, or other policy and
8-2 the right to defense under any such policy. The association shall
8-3 have a credit or setoff against any amount of benefits which would
8-4 otherwise be payable by the association to the claimant under this
8-5 Act, in the amount of the claimant's recovery under any policy
8-6 issued by an unimpaired insurer. Subject to the provisions of
8-7 subsections (1) and (2) below, the association's credit or setoff
8-8 under this Section shall be deducted from damages incurred by the
8-9 claimant, and the remaining sum shall be the maximum amount payable
8-10 by the association, except that the association's liability shall
8-11 not exceed $100,000 or the limits of the policy under which the
8-12 claim is made, whichever is less.
8-13 (1) Notwithstanding the foregoing, if a claimant is seeking
8-14 recovery of policy benefits that, but for the insolvency of the
8-15 impaired insurer, would be subject to lien or subrogation by a
8-16 workers' compensation insurer, health insurer or any other insurer,
8-17 whether impaired or not, then the association's credit or offset
8-18 shall be deducted from the damages incurred by the claimant or the
8-19 limits of the policy under which the claim is made, whichever is
8-20 less.
8-21 (2) In no event shall a claimant's recovery under this Act
8-22 result in a total recovery to the claimant that is greater than
8-23 that which would have resulted but for the insolvency of the
8-24 impaired insurer. Subject to Section 5 (8) of this Act, a
8-25 claimant's recovery under this Act shall not result in a recovery
9-1 to the claimant that is less than that which would have resulted
9-2 but for the insolvency of the impaired insurer.
9-3 SECTION 7. Section 14, Article 21.28-C, Insurance Code, is
9-4 amended to read as follows:
9-5 Not later than <March> April 30 of each year, the association
9-6 shall submit an audited financial statement to the state auditor
9-7 for the preceding calendar year in a form approved by the state
9-8 auditor's office.
9-9 SECTION 8. Section 17, Article 21.28-C, Insurance Code, is
9-10 amended to read as follows:
9-11 All proceedings in which an impaired insurer is a party or is
9-12 obligated to defend a party in any court in this state, except
9-13 proceedings directly related to the receivership or instituted by
9-14 the receiver, shall be stayed for six months and any additional
9-15 time thereafter as may be determined by the court from the date of
9-16 the designation of impairment or an ancillary proceeding is
9-17 instituted in the state, whichever is later, to permit proper
9-18 defense by the receiver or the association of all pending causes of
9-19 action. All deadlines under the Texas Rules of Civil Procedure,
9-20 the Texas Rules of Appellate Procedure, the Federal Rules of Civil
9-21 Procedure and the Federal Rules of Appellate Procedure shall be
9-22 tolled during the stay. The court in which the delinquency
9-23 proceeding is pending shall have exclusive jurisdiction and venue
9-24 regarding the application, enforcement and extension of the stay.
9-25 As to any covered claims arising from a judgment under any
10-1 decision, verdict, or finding based on the default of the impaired
10-2 insurer or its failure to defend an insured, the association either
10-3 on its own behalf or on behalf of the insured shall be entitled,
10-4 upon application, to have the judgment, order, decision, verdict,
10-5 or finding set aside by the same court or administrator that made
10-6 the judgment, order, decision, verdict, or finding and shall be
10-7 permitted to defend the claim on the merits.
10-8 SECTION 9. Section 18 of Article 21.28-C, Insurance Code, is
10-9 amended to read as follows:
10-10 (b) If the board of directors determines that additional
10-11 funds are needed in any of the three accounts, it shall make
10-12 assessments as necessary to produce the necessary funds. The
10-13 association, in determining the proportionate amount to be paid by
10-14 individual insurers under an assessment, shall take into
10-15 consideration the lines of business written by the impaired insurer
10-16 and shall assess individual insurers in proportion to the ratio
10-17 that the total net direct written premium collected in this state
10-18 by the insurer for those lines of business bears to the total net
10-19 direct written premium collected by all insurers, other than
10-20 impaired insurers, in this state for those lines of business. The
10-21 association shall determine the total net direct written premium of
10-22 an individual insurer and for all insurers in the state from the
10-23 insurers' annual statements for the year preceding assessment.
10-24 Assessments under this subsection during a calendar year may be
10-25 made up to, but not in excess of, two percent of each insurer's net
11-1 direct written premium for the preceding calendar year in the lines
11-2 of business for which the assessments are being made. However, in
11-3 the event of a natural disaster or other catastrophic event, the
11-4 association may seek authority from the Governor, Lieutenant
11-5 Governor and Speaker of the House of Representatives to assess
11-6 member insurers writing other than auto or workers' compensation
11-7 lines of business up to an additional two percent of each insurer's
11-8 net direct written premiums for the preceding calendar year. If
11-9 the maximum assessment in any calendar year does not provide an
11-10 amount sufficient for payment of covered claims of impaired
11-11 insurers, assessments may be made in the next and successive
11-12 calendar years.
11-13 (h) Notwithstanding paragraph (b) of this section, the
11-14 association may assess the workers' compensation line of business
11-15 during a calendar year not more than three percent of each
11-16 insurer's net direct written premium for the preceding calendar
11-17 year for assessments made on or before December 31, <1995> 1997. An
11-18 assessment under this subsection may be made only if the
11-19 association finds that the assessment is necessary to meet the
11-20 obligations of the association. This subsection expires January 1,
11-21 <1996> 1998.
11-22 SECTION 10. Paragraph (c), of Section 18, Art. 21.28-C,
11-23 Insurance Code is amended to read as follows:
11-24 It shall be the duty of each insurer to pay the amount of an
11-25 assessment under Section (b) of this section to the association not
12-1 later than the 30th day after the association <commissioner> gives
12-2 notice of the assessment.
12-3 SECTION 11. This Act takes effect on September 1, 1995.
12-4 SECTION 12. The importance of this legislation and the
12-5 crowded condition of the calendars in both houses create an
12-6 emergency and an imperative public necessity that the
12-7 constitutional rule requiring bills to be read on three several
12-8 days in each house be suspended, and this rule is hereby suspended.