By Bonnen H.B. No. 1476
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the priorities for distribution of certain assets of
1-3 insurance companies in receivership.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 6, Article 21.28, Insurance Code, is
1-6 amended to read as follows:
1-7 Sec. 6. EMPLOYEES [PRIORITY OF CLAIMS FOR WAGES]. [All
1-8 wages actually owed to employees of an insurer against whom a
1-9 proceeding under this Article is commenced, for services rendered
1-10 within three (3) months prior to the commencement of such
1-11 proceeding not exceeding One Thousand Dollars ($1,000) to each
1-12 employee shall be paid by the receiver as provided by Subsection
1-13 (a) of Section 8 of this Article.] The receiver shall pay wages
1-14 actually owed to employees of an insurer against whom a temporary
1-15 restraining order has been issued under this Article for services
1-16 rendered during the period covered by the temporary restraining
1-17 order as a Class 1 claim as provided by Section 8(a) of this
1-18 Article. Payment for those services must be made at the rate and
1-19 in the same manner as if paid by the insurer. The receiver may pay
1-20 wages actually owed to employees of an insurer against whom a
1-21 temporary injunction has been issued under this Article for
1-22 services rendered after the issuance of the temporary injunction.
1-23 Payment for those services is made at the discretion of the
1-24 receiver and as an expense of administration.
2-1 SECTION 2. Section 8(a), Article 21.28, Insurance Code, is
2-2 amended to read as follows:
2-3 (a) Priority of Distribution of Assets. (1) To further the
2-4 protection of policyholders and those making claims under insurance
2-5 policies, the following priorities are established. The priority
2-6 of distribution of assets from the insurer's estate shall be in
2-7 accordance with the disbursement plan approved by the court under
2-8 [pursuant to] Section 7A of this Article, and in accordance with
2-9 the order of each class as provided by this subsection. Every
2-10 claim in each class shall be paid in full or adequate funds
2-11 retained for such payment before the members of the next class
2-12 receive any payment. No subclasses shall be established within any
2-13 class.
2-14 (2) Classes of claims:
2-15 (A) Class 1:[.]
2-16 (i) [(1)] All of the receiver's,
2-17 conservator's, and supervisor's costs and expenses of
2-18 administration, including repayment of funds advanced to the
2-19 receiver from the abandoned property fund of the department [State
2-20 Board of Insurance].
2-21 (ii) [(2)] All of an insurance guaranty
2-22 association's or foreign insurance guaranty association's costs and
2-23 expenses of administration related to a receivership estate and all
2-24 of the expenses of an insurance guaranty association or foreign
2-25 insurance guaranty association in handling claims. For the purpose
2-26 of this subparagraph [subdivision], attorney's fees incurred by an
2-27 insurance guaranty association or foreign insurance guaranty
3-1 association in the defense of an insured under a policy issued by
3-2 an impaired insurer constitute an expense incurred in handling
3-3 claims.
3-4 (iii) [(3) Wages owed to employees of the
3-5 insurer as provided for in Section 6 of this Article.]
3-6 [(4)] Secured creditors to the extent of
3-7 the value of the security as provided by Section 8(c) of this
3-8 Article.
3-9 (B) Class 2: [.]
3-10 (i) [(1)] All claims by policyholders,
3-11 beneficiaries, insureds, and liability claims against insureds
3-12 covered under insurance policies and insurance contracts issued by
3-13 the insurer.
3-14 (ii) [(2)] All claims by an insurance
3-15 guaranty association or a foreign insurance guaranty association
3-16 that are payments of proper policyholder claims.
3-17 (C) Class 3: Claims of the federal government.
3-18 (D) Class 4: All other claims of general
3-19 creditors not falling within any other priority under this section
3-20 including claims for taxes and debts due [the federal government
3-21 or] any state or local government which are not secured claims.
3-22 (E) Class 5: [4.] Claims of surplus or
3-23 contribution note holders, holders of debentures or holders of
3-24 similar obligations and proprietary claims of shareholders,
3-25 members, or other owners according to the terms of the instruments.
3-26 (3) If any provision of this subsection or the
3-27 application of any provision of this subsection to any person or
4-1 circumstance is held invalid, that invalidity does not affect the
4-2 other provisions or applications of this subsection.
4-3 SECTION 3. Sections 10(a) and (b), Article 21.28, Insurance
4-4 Code, are amended to read as follows:
4-5 (a) Reinsurer's Liability. If the receiver has claims under
4-6 policies covered by reinsurance, there shall be no diminution of
4-7 the liability of the reinsurer to the receiver under the contracts
4-8 reinsured because of the delinquency proceeding against the
4-9 delinquent company, regardless of any provisions in the reinsurance
4-10 contract to the contrary, except: (i) where the contract or other
4-11 written agreement entered into prior to the delinquency proceeding
4-12 and otherwise permitted by law specifically provides another payee
4-13 of such reinsurance in the event of the insolvency of the ceding
4-14 insurer; or (ii) where the assuming insurer, with the consent of
4-15 the direct insured, has assumed such policy obligations of the
4-16 ceding insurer pursuant to an assumption reinsurance agreement as
4-17 direct obligations of the assuming insurer to the payees under
4-18 policies and in substitution for the obligations of the ceding
4-19 insurer to such payees. The reinsurance shall be payable under a
4-20 contract reinsured by the assuming insurer on the basis of reported
4-21 approved claims allowed in the liquidation proceeding pursuant to
4-22 Section 3(h) of this Article.
4-23 (b) Notice to Reinsurer. The liquidator or receiver shall
4-24 give written notice to the affected reinsurers of the pendency of a
4-25 claim against the receiver under a policy covered by reinsurance
4-26 within a reasonable time after such claim is filed in the
4-27 delinquency proceeding. During [and during] the pendency of such
5-1 claim any affected reinsurer may investigate such claim and
5-2 interpose, at its own expense, in the proceeding where the claim is
5-3 to be adjusted any defense or defenses which it may deem available
5-4 to the delinquent company, the liquidator or the receiver. Subject
5-5 to court approval, the expense thus incurred shall be chargeable
5-6 against the delinquent company as part of the expense of
5-7 liquidation to the extent of a proportionate share of the benefit
5-8 which may accrue to the delinquent company solely as a result of
5-9 the defense undertaken by the assuming insurer. Where two or more
5-10 assuming insurers are involved in the same claim and a majority in
5-11 interest elect to interpose a defense to such claim, the expense
5-12 shall be apportioned in accordance with the terms of the
5-13 reinsurance agreement as though such expense had been incurred by
5-14 the ceding insurer.
5-15 SECTION 4. This Act takes effect September 1, 1997.
5-16 SECTION 5. The importance of this legislation and the
5-17 crowded condition of the calendars in both houses create an
5-18 emergency and an imperative public necessity that the
5-19 constitutional rule requiring bills to be read on three several
5-20 days in each house be suspended, and this rule is hereby suspended.