1-1 AN ACT
1-2 relating to actions and records of the receiver and the priorities
1-3 of distribution of certain assets of insurance companies in
1-4 receivership.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 2, Article 21.28, Insurance Code, is
1-7 amended by adding Subsection (l) to read as follows:
1-8 (l) Actions by Receiver. When performing the duties of
1-9 receiver under this Article, the commissioner, a special deputy
1-10 receiver, or an agent or employee of the commissioner, or a special
1-11 deputy receiver shall be considered to be acting on behalf of the
1-12 receivership estate, and the provisions of Chapter 105, Civil
1-13 Practice and Remedies Code, shall not apply to any actions taken
1-14 pursuant to this Article.
1-15 SECTION 2. Section 6, Article 21.28, Insurance Code, is
1-16 amended to read as follows:
1-17 Sec. 6. EMPLOYEES [PRIORITY OF CLAIMS FOR WAGES]. [All
1-18 wages actually owed to employees of an insurer against whom a
1-19 proceeding under this Article is commenced, for services rendered
1-20 within three (3) months prior to the commencement of such
1-21 proceeding not exceeding One Thousand Dollars ($1,000) to each
1-22 employee shall be paid by the receiver as provided by Subsection
1-23 (a) of Section 8 of this Article.] The receiver shall pay wages
1-24 actually owed to employees of an insurer against whom a temporary
2-1 restraining order has been issued under this Article for services
2-2 rendered during the period covered by the temporary restraining
2-3 order as a Class 1 claim as provided by Section 8(a) of this
2-4 Article. Payment for those services must be made at the rate and
2-5 in the same manner as if paid by the insurer. The receiver may pay
2-6 wages actually owed to employees of an insurer against whom a
2-7 temporary injunction has been issued under this Article for
2-8 services rendered after the issuance of the temporary injunction.
2-9 Payment for those services is made at the discretion of the
2-10 receiver and as an expense of administration.
2-11 SECTION 3. Section 8(a), Article 21.28, Insurance Code, is
2-12 amended to read as follows:
2-13 (a) Priority of Distribution of Assets. (1) In order to
2-14 provide for the orderly liquidation of a receivership estate and to
2-15 further the protection of policyholders and those making claims
2-16 under insurance policies, the following priorities are established.
2-17 The priority of distribution of assets from the insurer's estate
2-18 shall be in accordance with the disbursement plan approved by the
2-19 court under [pursuant to] Section 7A of this Article, and in
2-20 accordance with the order of each class as provided by this
2-21 subsection. Every claim in each class shall be paid in full or
2-22 adequate funds retained for such payment before the members of the
2-23 next class receive any payment. No subclasses shall be established
2-24 within any class.
2-25 (2) Classes of claims:
2-26 (A) Class 1:[.]
2-27 (i) [(1)] All of the receiver's,
3-1 conservator's, and supervisor's costs and expenses of
3-2 administration, including repayment of funds advanced to the
3-3 receiver from the abandoned property fund of the department [State
3-4 Board of Insurance].
3-5 (ii) [(2)] All of an insurance guaranty
3-6 association's or foreign insurance guaranty association's costs and
3-7 expenses of administration related to a receivership estate and all
3-8 of the expenses of an insurance guaranty association or foreign
3-9 insurance guaranty association in handling claims. For the purpose
3-10 of this subparagraph [subdivision], attorney's fees incurred by an
3-11 insurance guaranty association or foreign insurance guaranty
3-12 association in the defense of an insured under a policy issued by
3-13 an impaired insurer constitute an expense incurred in handling
3-14 claims.
3-15 (iii) [(3) Wages owed to employees of the
3-16 insurer as provided for in Section 6 of this Article.]
3-17 [(4)] Secured creditors to the extent of the value of
3-18 the security as provided by Section 8(c) of this Article.
3-19 (B) Class 2:[.]
3-20 (i) [(1)] All claims by policyholders,
3-21 beneficiaries, insureds, and liability claims against insureds
3-22 covered under insurance policies and insurance contracts issued by
3-23 the insurer.
3-24 (ii) [(2)] All claims by an insurance
3-25 guaranty association or a foreign insurance guaranty association
3-26 that are payments of proper policyholder claims.
3-27 (C) Class 3: Claims of the federal government
4-1 not included in Class 2, above.
4-2 (D) Class 4: All other claims of general
4-3 creditors not falling within any other priority under this section
4-4 including claims for taxes and debts due [the federal government
4-5 or] any state or local government which are not secured claims.
4-6 (E) Class 5: [4.] Claims of surplus or
4-7 contribution note holders, holders of debentures or holders of
4-8 similar obligations and proprietary claims of shareholders,
4-9 members, or other owners according to the terms of the instruments.
4-10 (3) If any provision of this subsection or the
4-11 application of any provision of this subsection to any person or
4-12 circumstance is held invalid, that invalidity does not affect the
4-13 other provisions or applications of this subsection.
4-14 SECTION 4. Sections 10(a) and (b), Article 21.28, Insurance
4-15 Code, are amended to read as follows:
4-16 (a) Reinsurer's Liability. If the receiver has claims under
4-17 policies covered by reinsurance, there shall be no diminution of
4-18 the liability of the reinsurer to the receiver under the contracts
4-19 reinsured because of the delinquency proceeding against the
4-20 delinquent company, regardless of any provisions in the reinsurance
4-21 contract to the contrary, except: (i) where the contract or other
4-22 written agreement entered into prior to the delinquency proceeding
4-23 and otherwise permitted by law specifically provides another payee
4-24 of such reinsurance in the event of the insolvency of the ceding
4-25 insurer; or (ii) where the assuming insurer, with the consent of
4-26 the direct insured, has assumed such policy obligations of the
4-27 ceding insurer pursuant to an assumption reinsurance agreement as
5-1 direct obligations of the assuming insurer to the payees under
5-2 policies and in substitution for the obligations of the ceding
5-3 insurer to such payees. With the sole exception of (i) and (ii)
5-4 above, any reinsurance shall be payable to the receiver under a
5-5 contract reinsured by the assuming insurer on the basis of approved
5-6 claims under Section 3(h) of this Article and claims paid under
5-7 Articles 9.48, 21.28-C, and 21.28-D of this code or the guaranty
5-8 associations of other states.
5-9 (b) Notice to Reinsurer. The liquidator or receiver shall
5-10 give written notice to the affected reinsurers of the pendency of a
5-11 claim against the receiver under a policy covered by reinsurance
5-12 within a reasonable time after such claim is filed in the
5-13 delinquency proceeding. During[, and during] the pendency of such
5-14 claim any affected reinsurer may investigate such claim and
5-15 interpose, at its own expense, in the proceeding where the claim is
5-16 to be adjusted any defense or defenses which it may deem available
5-17 to the delinquent company, the liquidator or the receiver. Subject
5-18 to court approval, the expense thus incurred shall be chargeable
5-19 against the delinquent company as part of the expense of
5-20 liquidation to the extent of a proportionate share of the benefit
5-21 which may accrue to the delinquent company solely as a result of
5-22 the defense undertaken by the assuming insurer. Where two or more
5-23 assuming insurers are involved in the same claim and a majority in
5-24 interest elect to interpose a defense to such claim, the expense
5-25 shall be apportioned in accordance with the terms of the
5-26 reinsurance agreement as though such expense had been incurred by
5-27 the ceding insurer.
6-1 SECTION 5. Section 11, Article 21.28, Insurance Code, is
6-2 amended by adding Subsection (f) to read as follows:
6-3 (f) Open Records. Chapter 552, Government Code, shall not
6-4 apply to any records of a receivership estate, or to the records of
6-5 an insurance company prior to its receivership, held by the
6-6 receiver or by a special deputy receiver under this Article.
6-7 SECTION 6. This Act takes effect September 1, 1997.
6-8 SECTION 7. The importance of this legislation and the
6-9 crowded condition of the calendars in both houses create an
6-10 emergency and an imperative public necessity that the
6-11 constitutional rule requiring bills to be read on three several
6-12 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 1476 was passed by the House on May
6, 1997, by a non-record vote; and that the House concurred in
Senate amendments to H.B. No. 1476 on May 29, 1997, by a non-record
vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 1476 was passed by the Senate, with
amendments, on May 26, 1997, by the following vote: Yeas 31, Nays
0.
_______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor