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