1-1 By: Bonnen (Senate Sponsor - Sibley) H.B. No. 1476
1-2 (In the Senate - Received from the House May 7, 1997;
1-3 May 8, 1997, read first time and referred to Committee on Economic
1-4 Development; May 16, 1997, reported adversely, with favorable
1-5 Committee Substitute by the following vote: Yeas 8, Nays 0;
1-6 May 16, 1997, sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR H.B. No. 1476 By: Sibley
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to actions and records of the receiver and the priorities
1-11 of distribution of certain assets of insurance companies in
1-12 receivership.
1-13 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-14 SECTION 1. Section 2, Article 21.28, Insurance Code, is
1-15 amended by adding Subsection (l) to read as follows:
1-16 (l) Actions by Receiver. When performing the duties of
1-17 receiver under this Article, the commissioner, a special deputy
1-18 receiver, or an agent or employee of the commissioner, or a special
1-19 deputy receiver shall be considered to be acting on behalf of the
1-20 receivership estate, and the provisions of Chapter 105, Civil
1-21 Practices and Remedies Code shall, not apply to any actions taken
1-22 pursuant to this Article.
1-23 SECTION 2. Section 6, Article 21.28, Insurance Code, is
1-24 amended to read as follows:
1-25 Sec. 6. EMPLOYEES [PRIORITY OF CLAIMS FOR WAGES]. [All
1-26 wages actually owed to employees of an insurer against whom a
1-27 proceeding under this Article is commenced, for services rendered
1-28 within three (3) months prior to the commencement of such
1-29 proceeding not exceeding One Thousand Dollars ($1,000) to each
1-30 employee shall be paid by the receiver as provided by Subsection
1-31 (a) of Section 8 of this Article.] The receiver shall pay wages
1-32 actually owed to employees of an insurer against whom a temporary
1-33 restraining order has been issued under this Article for services
1-34 rendered during the period covered by the temporary restraining
1-35 order as a Class 1 claim as provided by Section 8(a) of this
1-36 Article. Payment for those services must be made at the rate and
1-37 in the same manner as if paid by the insurer. The receiver may pay
1-38 wages actually owed to employees of an insurer against whom a
1-39 temporary injunction has been issued under this Article for
1-40 services rendered after the issuance of the temporary injunction.
1-41 Payment for those services is made at the discretion of the
1-42 receiver and as an expense of administration.
1-43 SECTION 3. Section 8(a), Article 21.28, Insurance Code, is
1-44 amended to read as follows:
1-45 (a) Priority of Distribution of Assets. (1) In order to
1-46 provide for the orderly liquidation of a receivership estate and to
1-47 further the protection of policyholders and those making claims
1-48 under insurance policies, the following priorities are established.
1-49 The priority of distribution of assets from the insurer's estate
1-50 shall be in accordance with the disbursement plan approved by the
1-51 court under [pursuant to] Section 7A of this Article, and in
1-52 accordance with the order of each class as provided by this
1-53 subsection. Every claim in each class shall be paid in full or
1-54 adequate funds retained for such payment before the members of the
1-55 next class receive any payment. No subclasses shall be established
1-56 within any class.
1-57 (2) Classes of claims:
1-58 (A) Class 1:[.]
1-59 (i) [(1)] All of the receiver's,
1-60 conservator's, and supervisor's costs and expenses of
1-61 administration, including repayment of funds advanced to the
1-62 receiver from the abandoned property fund of the department [State
1-63 Board of Insurance].
1-64 (ii) [(2)] All of an insurance guaranty
2-1 association's or foreign insurance guaranty association's costs and
2-2 expenses of administration related to a receivership estate and all
2-3 of the expenses of an insurance guaranty association or foreign
2-4 insurance guaranty association in handling claims. For the purpose
2-5 of this subparagraph [subdivision], attorney's fees incurred by an
2-6 insurance guaranty association or foreign insurance guaranty
2-7 association in the defense of an insured under a policy issued by
2-8 an impaired insurer constitute an expense incurred in handling
2-9 claims.
2-10 (iii) [(3) Wages owed to employees of the
2-11 insurer as provided for in Section 6 of this Article.]
2-12 [(4)] Secured creditors to the extent of the value of
2-13 the security as provided by Section 8(c) of this Article.
2-14 (B) Class 2:[.]
2-15 (i) [(1)] All claims by policyholders,
2-16 beneficiaries, insureds, and liability claims against insureds
2-17 covered under insurance policies and insurance contracts issued by
2-18 the insurer.
2-19 (ii) [(2)] All claims by an insurance
2-20 guaranty association or a foreign insurance guaranty association
2-21 that are payments of proper policyholder claims.
2-22 (C) Class 3: Claims of the federal government
2-23 not included in Class 2, above.
2-24 (D) Class 4: All other claims of general
2-25 creditors not falling within any other priority under this section
2-26 including claims for taxes and debts due [the federal government
2-27 or] any state or local government which are not secured claims.
2-28 (E) Class 5: [4.] Claims of surplus or
2-29 contribution note holders, holders of debentures or holders of
2-30 similar obligations and proprietary claims of shareholders,
2-31 members, or other owners according to the terms of the instruments.
2-32 (3) If any provision of this subsection or the
2-33 application of any provision of this subsection to any person or
2-34 circumstance is held invalid, that invalidity does not affect the
2-35 other provisions or applications of this subsection.
2-36 SECTION 4. Sections 10(a) and (b), Article 21.28, Insurance
2-37 Code, are amended to read as follows:
2-38 (a) Reinsurer's Liability. If the receiver has claims under
2-39 policies covered by reinsurance, there shall be no diminution of
2-40 the liability of the reinsurer to the receiver under the contracts
2-41 reinsured because of the delinquency proceeding against the
2-42 delinquent company, regardless of any provisions in the reinsurance
2-43 contract to the contrary, except: (i) where the contract or other
2-44 written agreement entered into prior to the delinquency proceeding
2-45 and otherwise permitted by law specifically provides another payee
2-46 of such reinsurance in the event of the insolvency of the ceding
2-47 insurer; or (ii) where the assuming insurer, with the consent of
2-48 the direct insured, has assumed such policy obligations of the
2-49 ceding insurer pursuant to an assumption reinsurance agreement as
2-50 direct obligations of the assuming insurer to the payees under
2-51 policies and in substitution for the obligations of the ceding
2-52 insurer to such payees. With the sole exception of (i) and (ii)
2-53 above, any reinsurance shall be payable to the receiver under a
2-54 contract reinsured by the assuming insurer on the basis of approved
2-55 claims under Section 3(h) of this Article and claims paid under
2-56 Articles 9.48, 21.28-C, and 21.28-D of this code or the guaranty
2-57 associations of other states.
2-58 (b) Notice to Reinsurer. The liquidator or receiver shall
2-59 give written notice to the affected reinsurers of the pendency of a
2-60 claim against the receiver under a policy covered by reinsurance
2-61 within a reasonable time after such claim is filed in the
2-62 delinquency proceeding. During [and during] the pendency of such
2-63 claim any affected reinsurer may investigate such claim and
2-64 interpose, at its own expense, in the proceeding where the claim is
2-65 to be adjusted any defense or defenses which it may deem available
2-66 to the delinquent company, the liquidator or the receiver. Subject
2-67 to court approval, the expense thus incurred shall be chargeable
2-68 against the delinquent company as part of the expense of
2-69 liquidation to the extent of a proportionate share of the benefit
3-1 which may accrue to the delinquent company solely as a result of
3-2 the defense undertaken by the assuming insurer. Where two or more
3-3 assuming insurers are involved in the same claim and a majority in
3-4 interest elect to interpose a defense to such claim, the expense
3-5 shall be apportioned in accordance with the terms of the
3-6 reinsurance agreement as though such expense had been incurred by
3-7 the ceding insurer.
3-8 SECTION 5. Section 11, Article 21.28, Insurance Code, is
3-9 amended by adding Subsection (f) to read as follows:
3-10 (f) Open Records. Chapter 552, Government Code, shall not
3-11 apply to any records of a receivership estate, or to the records of
3-12 an insurance company prior to its receivership, held by the
3-13 receiver or by a special deputy receiver under this Article.
3-14 SECTION 6. This Act takes effect September 1, 1997.
3-15 SECTION 7. The importance of this legislation and the
3-16 crowded condition of the calendars in both houses create an
3-17 emergency and an imperative public necessity that the
3-18 constitutional rule requiring bills to be read on three several
3-19 days in each house be suspended, and this rule is hereby suspended.
3-20 * * * * *