1-1 By: Counts (Senate Sponsor - Armbrister) H.B. No. 2960
1-2 (In the Senate - Received from the House May 11, 1995;
1-3 May 12, 1995, read first time and referred to Committee on Economic
1-4 Development; May 18, 1995, reported favorably by the following
1-5 vote: Yeas 7, Nays 0; May 18, 1995, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to the liquidation of insolvent insurers, the commissioner
1-9 of insurance in his statutory capacity as receiver, and the
1-10 insurance guaranty associations.
1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12 SECTION 1. Section 14(c), Article 9.48, Insurance Code, is
1-13 amended to read as follows:
1-14 (c) Powers and duties of association. In addition to the
1-15 powers and duties provided by other sections of this article, the
1-16 association:
1-17 (1) may render assistance and advice to the
1-18 commissioner, upon his request, concerning rehabilitation, payment
1-19 of claims, continuations of coverage, or the performance of other
1-20 contractual obligations of any impaired insurer or agent;
1-21 (2) has standing to appear before any court in this
1-22 state with jurisdiction over an impaired insurer or agent
1-23 concerning which the association is or may become obligated under
1-24 this article;
1-25 (3) Each director of the association shall file a
1-26 financial statement with the Texas Ethics Commission in accordance
1-27 with Subchapter B, Chapter 572, Government Code <Sections 3 and 4,
1-28 Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973
1-29 (Article 6252-9b, Vernon's Texas Civil Statutes)>.
1-30 (4) may borrow funds as necessary to implement this
1-31 article in accordance with the plan of operation;
1-32 (5) may lend money to an impaired insurer;
1-33 (6) sue or be sued, including taking any legal actions
1-34 necessary or proper for recovery of any unpaid assessments;
1-35 (7) may enter into contracts as necessary or proper to
1-36 implement this article;
1-37 (8) may employ or retain such persons who are
1-38 necessary to handle the financial transactions of the association,
1-39 and to perform any other functions that become necessary or proper
1-40 under this article;
1-41 (9) may ensure payment of the policy obligations of an
1-42 impaired insurer;
1-43 (10) may negotiate and contract with any liquidator,
1-44 rehabilitator, conservator, receiver, or ancillary receiver to
1-45 carry out the powers and duties of the association;
1-46 (11) may guarantee, assume, or reinsure, or cause to
1-47 be guaranteed, assumed, or reinsured, a policy or contract of an
1-48 impaired insurer;
1-49 (12) may take legal action as necessary to avoid the
1-50 payment of improper claims, or to settle claims or potential claims
1-51 against the impaired insurer or association;
1-52 (13) shall, on the request of the commissioner,
1-53 authorize the expenditure of funds from the guaranty fee account to
1-54 retain, compensate, and reimburse for reasonable and necessary
1-55 expenses, a person or persons who will audit and review agent <and
1-56 insurer> escrow and trust accounts, financial condition, and
1-57 compliance with applicable statutes and rules and make reports
1-58 relating to the <those> accounts, agent financial condition, and
1-59 compliance to the commissioner, solely under the direction of and
1-60 as assigned by the commissioner;
1-61 (14) shall collect, receive, retain, and disburse the
1-62 income provided by Section 6 of this article solely for the
1-63 purposes, to the persons, and under the circumstances that are
1-64 specifically stated in this article; and
1-65 (15) may perform other acts as necessary or proper to
1-66 implement this article.
1-67 SECTION 2. Section 2, Article 21.28, Insurance Code, is
1-68 amended by amending Subsection (g) and adding Subsections (j) and
2-1 (k) to read as follows:
2-2 (g) Disposal of Property; Settling Claims. The receiver
2-3 may, subject to the approval of the court, (1) sell or otherwise
2-4 dispose of the real and personal property, or any part thereof, of
2-5 an insurer against whom a proceeding has been brought under this
2-6 Article, and (2) sell or compound all doubtful or uncollectible
2-7 debts, or claims owed by or owing to such insurer, including claims
2-8 based upon an assessment levied against a member of a mutual
2-9 insurer, reciprocal exchange, or an underwriter at Lloyds.
2-10 Whenever the amount of any such debt or claim owed by or owing to
2-11 such insurer or the value of any item of property of the insurer
2-12 does not exceed Ten Thousand Dollars ($10,000) <One Thousand
2-13 Dollars ($1,000)>, exclusive of interest, the receiver may
2-14 compromise or compound such debt or claim or sell such property
2-15 upon such terms as the receiver <he> may deem for the best
2-16 interests of said insurer without obtaining the approval of the
2-17 court. The receiver may, subject to the approval of the court,
2-18 sell or agree to sell, or offer to sell, any assets of such an
2-19 insurer to such of its creditors who may desire to participate in
2-20 the purchase thereof, to be paid for, in all or in part, out of
2-21 dividends payable to such creditors, and, upon the application of
2-22 the receiver, the court may designate representatives to act for
2-23 such creditors in the purchase, holding and/or management of such
2-24 assets, and the receiver may, subject to the approval of the court,
2-25 advance the expenses of such representatives against the security
2-26 of the claims of such creditors. The receiver may, subject to the
2-27 approval of the court and the commissioner <State Board of
2-28 Insurance>, as required by this code, sell or otherwise dispose of
2-29 the charter or license of the insurer separate and apart from its
2-30 outstanding liabilities.
2-31 (j) Immunity. There is no liability on the part of, and a
2-32 cause of action does not arise against, the receiver, a special
2-33 deputy receiver, the commissioner, or an agent or employee of the
2-34 receiver, a special deputy receiver, or the commissioner for a good
2-35 faith action or failure to act in the performance of powers and
2-36 duties under this article.
2-37 (k) Representation by Attorney General. The attorney
2-38 general shall defend an action to which Subsection (j) of this
2-39 section applies that is brought against the receiver, a special
2-40 deputy receiver, the commissioner, or an agent or employee of the
2-41 receiver, a special deputy receiver, or the commissioner. This
2-42 subsection continues to apply to an action that is brought after
2-43 the defendant's service with the receiver, a special deputy
2-44 receiver, the commissioner, or the department has terminated or
2-45 after the close of the receivership out of which the action arises.
2-46 This subsection does not require the attorney general to defend any
2-47 person with respect to an issue other than the applicability or
2-48 effect of the judicial immunity codified by Subsection (j) of this
2-49 section.
2-50 SECTION 3. Section 8(a), Article 21.28, Insurance Code, is
2-51 amended to read as follows:
2-52 (a) Priority of Distribution of Assets. The priority of
2-53 distribution of assets from the insurer's estate shall be in
2-54 accordance with the disbursement plan approved by the court
2-55 pursuant to Section 7A of this Article, and in accordance with the
2-56 order of each class as provided by this subsection. Every claim in
2-57 each class shall be paid in full or adequate funds retained for
2-58 such payment before the members of the next class receive any
2-59 payment. No subclasses shall be established within any class.
2-60 Class 1.
2-61 (1) All of the receiver's, conservator's, and
2-62 supervisor's costs and expenses of administration, including
2-63 repayment of funds advanced to the receiver from the abandoned
2-64 property fund of the State Board of Insurance.
2-65 (2) All of an insurance guaranty association's or
2-66 foreign insurance guaranty association's costs and expenses of
2-67 administration related to a receivership estate and all <All> of
2-68 the expenses of an insurance guaranty association or foreign
2-69 insurance guaranty association in handling claims.
2-70 For the purpose of this subdivision, attorney's fees
3-1 incurred by an insurance guaranty association or foreign insurance
3-2 guaranty association in the defense of an insured under a policy
3-3 issued by an impaired insurer constitute an expense incurred in
3-4 handling claims.
3-5 (3) Wages owed to employees of the insurer as provided
3-6 for in Section 6 of this Article.
3-7 (4) Secured creditors to the extent of the value of
3-8 the security as provided by Section 8(c) of this Article.
3-9 Class 2.
3-10 (1) All claims by policyholders, beneficiaries,
3-11 insureds, and liability claims against insureds covered under
3-12 insurance policies and insurance contracts issued by the insurer.
3-13 (2) All claims by an insurance guaranty association or
3-14 a foreign insurance guaranty association that are payments of
3-15 proper policyholder claims.
3-16 Class 3.
3-17 All other claims of general creditors not falling within any
3-18 other priority under this section including claims for taxes and
3-19 debts due the federal government or any state or local government
3-20 which are not secured claims.
3-21 Class 4.
3-22 Claims of surplus or contribution note holders, holders of
3-23 debentures or holders of similar obligations and proprietary claims
3-24 of shareholders, members, or other owners according to the terms of
3-25 the instruments.
3-26 SECTION 4. Section 5(8), Article 21.28-C, Insurance Code, is
3-27 amended to read as follows:
3-28 (8) "Covered claim" means an unpaid claim of an
3-29 insured or third-party liability claimant that arises out of and is
3-30 within the coverage and not in excess of the applicable limits of
3-31 an insurance policy to which this Act applies, issued or assumed
3-32 (whereby an assumption certificate is issued to the insured) by an
3-33 insurer licensed to do business in this state, if that insurer
3-34 becomes an impaired insurer and the third-party claimant or
3-35 liability claimant or insured is a resident of this state at the
3-36 time of the insured event, or the <property from which the> claim
3-37 <arises> is a first-party claim for damage to property that is
3-38 permanently located in this state. "Covered claim" shall also
3-39 include 75 percent of unearned premiums, but in no event shall a
3-40 covered claim for unearned premiums exceed $1,000. Individual
3-41 covered claims (including any and all derivative claims by more
3-42 than one person which arise from the same occurrence, which shall
3-43 be considered collectively as a single claim under this Act) shall
3-44 be limited to $100,000, except that the association shall pay the
3-45 full amount of any covered claim arising out of a workers'
3-46 compensation claim made under a workers' compensation policy.
3-47 "Covered claim" shall not include any amount sought as a return of
3-48 premium under a retrospective rating plan or any amount due any
3-49 reinsurer, insurer, insurance pool, or underwriting association, as
3-50 subrogation recoveries, reinsurance recoveries, contribution,
3-51 indemnification, or otherwise, and the insured of an impaired
3-52 insurer is not liable, and the insurer is not entitled to sue or
3-53 continue a suit against that insured, for any subrogation recovery,
3-54 reinsurance recovery, contribution, or indemnity asserted by a
3-55 reinsurer, insurer, insurance pool, or underwriting association to
3-56 the extent of the applicable liability limits of the policy written
3-57 and issued to the insured by the insolvent insurer. "Covered
3-58 claim" shall not include supplementary payment obligations,
3-59 including adjustment fees and expenses, attorney's fees and
3-60 expenses, court costs, interest and penalties, and interest and
3-61 bond premiums incurred prior to the determination that an insurer
3-62 is an impaired insurer under this Act. "Covered claim" shall not
3-63 include any prejudgment or postjudgment interest that accrues
3-64 subsequent to the determination that an insurer is an impaired
3-65 insurer under this Act. "Covered claim" shall not include any
3-66 claim for recovery of punitive, exemplary, extracontractual, or
3-67 bad-faith damages, whether sought as a recovery against the
3-68 insured, insurer, guaranty association, receiver, special deputy
3-69 receiver, or commissioner, awarded in a court judgment against an
3-70 insured or insurer. "Covered claim" shall not include, and the
4-1 association shall not have any liability to an insured or
4-2 third-party liability claimant, for its failure to settle a
4-3 liability claim within the limits of a covered claim under this
4-4 Act. With respect to a covered claim for unearned premiums, both
4-5 persons who were residents of this state at the time the policy was
4-6 issued and persons who are residents of this state at the time the
4-7 company is found to be an impaired insurer shall be considered to
4-8 have covered claims under this Act. If the impaired insurer has
4-9 insufficient assets to pay the expenses of administering the
4-10 receivership or conservatorship estate, that portion of the
4-11 expenses of administration incurred in the processing and payment
4-12 of claims against the estate shall also be a covered claim under
4-13 this Act.
4-14 SECTION 5. Section 7(a), Article 21.28-C, Insurance Code, is
4-15 amended to read as follows:
4-16 (a) The board of directors of the association is composed of
4-17 nine persons who serve terms as established in the plan of
4-18 operation. Five members shall be selected by member insurers,
4-19 subject to the approval of the commissioner. To be eligible to
4-20 serve as an insurance industry board member, a person must be a
4-21 full-time employee of a member insurer. The remaining members
4-22 shall be representatives of the general public appointed by the
4-23 commissioner. Vacancies on the board shall be filled for the
4-24 remaining period of the term by a majority vote of the remaining
4-25 board members, subject to the approval of the commissioner.
4-26 SECTION 6. Section 8(b), Article 21.28-C, Insurance Code, is
4-27 amended to read as follows:
4-28 (b) The association shall undertake to discharge the policy
4-29 obligations of the impaired insurer, including the duty to defend
4-30 insureds under a liability policy, to the extent that the policy
4-31 obligations are covered claims under this Act. In performing its
4-32 statutory obligations, the association may also enforce any duty
4-33 imposed on the insured party or beneficiary under the terms of any
4-34 policy of insurance within the scope of this Act. In performing
4-35 its statutory obligations under this Act, the association shall not
4-36 be considered to be in the business of insurance, shall not be
4-37 considered to have assumed or succeeded to any liabilities of the
4-38 impaired insurer, and shall not be considered to otherwise stand in
4-39 the shoes of the impaired insurer for any purpose, including the
4-40 issue of whether the association is amenable to the personal
4-41 jurisdiction of the courts of any other state. <The association is
4-42 considered the insurer to the extent of its obligation on the
4-43 covered claims and to that extent has all rights, duties, and
4-44 obligations of the impaired insurer as if the insurer had not
4-45 become impaired.>
4-46 SECTION 7. Section 12(a), Article 21.28-C, Insurance Code,
4-47 is amended to read as follows:
4-48 (a) A person who has a claim against an insurer under any
4-49 provision in an insurance policy other than a policy of an impaired
4-50 insurer that is also a covered claim shall exhaust first the
4-51 person's rights under the policy, including any claim for indemnity
4-52 or medical benefits under any workers' compensation, health,
4-53 disability, uninsured motorist, personal injury protection, medical
4-54 payment, liability, or other policy, and the right to defense under
4-55 the policy. The association shall have a credit or setoff against
4-56 any amount of benefits which would otherwise be payable by the
4-57 association to the claimant under this Act, in the amount of the
4-58 claimant's recovery under any policy issued by an unimpaired
4-59 insurer. Subject to the provisions of Subsection (a-1) below, the
4-60 association's credit or setoff under this section shall be deducted
4-61 from damages incurred by the claimant, and the remaining sum shall
4-62 be the maximum amount payable by the association, except that the
4-63 association's liability shall not exceed $100,000 or the limits of
4-64 the policy under which the claim is made, whichever is less.
4-65 SECTION 8. Section 14, Article 21.28-C, Insurance Code, is
4-66 amended to read as follows:
4-67 Sec. 14. EXAMINATION OF THE ASSOCIATION. Not later than
4-68 April <March> 30 of each year, the association shall submit an
4-69 audited financial statement to the state auditor for the preceding
4-70 calendar year in a form approved by the state auditor's office.
5-1 SECTION 9. Section 17, Article 21.28-C, Insurance Code, is
5-2 amended to read as follows:
5-3 Sec. 17. Stay of proceedings. All proceedings in which an
5-4 impaired insurer is a party or is obligated to defend a party in
5-5 any court in this state, except proceedings directly related to the
5-6 receivership or instituted by the receiver, shall be stayed for six
5-7 months and any additional time thereafter as may be determined by
5-8 the court from the date of the designation of impairment or an
5-9 ancillary proceeding is instituted in the state, whichever is
5-10 later, to permit proper defense by the receiver or the association
5-11 of all pending causes of action. A deadline imposed under the
5-12 Texas Rules of Civil Procedure or the Texas Rules of Appellate
5-13 Procedure is tolled during the stay. The court in which the
5-14 delinquency proceeding is pending has exclusive jurisdiction
5-15 regarding the application, enforcement, and extension of the stay.
5-16 As to any covered claims arising from a judgment under any
5-17 decision, verdict, or finding based on the default of the impaired
5-18 insurer or its failure to defend an insured, the association either
5-19 on its own behalf or on behalf of the insured shall be entitled,
5-20 upon application, to have the judgment, order, decision, verdict,
5-21 or finding set aside by the same court or administrator that made
5-22 the judgment, order, decision, verdict, or finding and shall be
5-23 permitted to defend the claim on the merits. The receiver or
5-24 statutory successor of an impaired insurer covered by this Act
5-25 shall permit access by the board or its authorized representative
5-26 to records of the impaired insurer as are necessary for the board
5-27 in carrying out its functions under this Act with regard to covered
5-28 claims. In addition, the receiver or statutory successor shall
5-29 provide the board or its representative with copies of the records
5-30 on request of the board and at the expense of the board.
5-31 SECTION 10. Sections 18(b), (c), and (h), Article 21.28-C,
5-32 Insurance Code, are amended to read as follows:
5-33 (b) If the board of directors determines that additional
5-34 funds are needed in any of the three accounts, it shall make
5-35 assessments as necessary to produce the necessary funds. The
5-36 association, in determining the proportionate amount to be paid by
5-37 individual insurers under an assessment, shall take into
5-38 consideration the lines of business written by the impaired insurer
5-39 and shall assess individual insurers in proportion to the ratio
5-40 that the total net direct written premium collected in this state
5-41 by the insurer for those lines of business bears to the total net
5-42 direct written premium collected by all insurers, other than
5-43 impaired insurers, in this state for those lines of business. The
5-44 association shall determine the total net direct written premium of
5-45 an individual insurer and for all insurers in the state from the
5-46 insurers' annual statements for the year preceding assessment.
5-47 Except as otherwise provided by this subsection, assessments
5-48 <Assessments> under this subsection during a calendar year may be
5-49 made up to, but not in excess of, two percent of each insurer's net
5-50 direct written premium for the preceding calendar year in the lines
5-51 of business for which the assessments are being made. In the event
5-52 of a natural disaster or other catastrophic event, the association
5-53 may apply to the governor, in the manner prescribed by the plan of
5-54 operation, for authority to assess each member insurer that writes
5-55 insurance coverage, other than motor vehicle coverage or workers'
5-56 compensation coverage, an additional amount not to exceed two
5-57 percent of the insurer's net direct written premiums for the
5-58 preceding calendar year. If the maximum assessment in any calendar
5-59 year does not provide an amount sufficient for payment of covered
5-60 claims of impaired insurers, assessments may be made in the next
5-61 and successive calendar years.
5-62 (c) It shall be the duty of each insurer to pay the amount
5-63 of an assessment under Subsection (b) of this section to the
5-64 association not later than the 30th day after the association
5-65 <commissioner> gives notice of the assessment.
5-66 (h) Notwithstanding Subsection (b) of this section, the
5-67 association may assess the workers' compensation line of business
5-68 during a calendar year not more than three percent of each
5-69 insurer's net direct written premium for the preceding calendar
5-70 year for assessments made on or before December 31, 1997 <1995>.
6-1 An assessment under this subsection may be made only if the
6-2 association finds that the assessment is necessary to meet the
6-3 obligations of the association. This subsection expires January 1,
6-4 1998 <1996>.
6-5 SECTION 11. Section 11(b), Article 21.54, Insurance Code, is
6-6 amended to read as follows:
6-7 (b) No claim against a purchasing group or its members shall
6-8 be entitled to payment from any insurance insolvency guaranty fund
6-9 or similar mechanism in this state, nor shall a purchasing group or
6-10 its members or claimants against the group or its members receive
6-11 any benefit from such fund for claims arising under the insurance
6-12 policies procured through the purchasing group unless the policies
6-13 are underwritten by insurance companies that are licensed in this
6-14 state and have capital and surplus of at least $25 million, or
6-15 insurance companies that are licensed in this state that are
6-16 members of company groups with combined capital and surplus of at
6-17 least $25 million, at the time of policy issuance.
6-18 SECTION 12. This Act applies only to a liquidation or
6-19 receivership of an impaired insurer that is begun on or after the
6-20 effective date of this Act.
6-21 SECTION 13. The importance of this legislation and the
6-22 crowded condition of the calendars in both houses create an
6-23 emergency and an imperative public necessity that the
6-24 constitutional rule requiring bills to be read on three several
6-25 days in each house be suspended, and this rule is hereby suspended,
6-26 and that this Act take effect and be in force from and after its
6-27 passage, and it is so enacted.
6-28 * * * * *