H.B. No. 2157
AN ACT
relating to the receivership of insurers in this state; providing
penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Title 1, Insurance Code, is amended by adding
Chapter 21A to read as follows:
CHAPTER 21A. INSURER RECEIVERSHIP ACT
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 21A.001. CONSTRUCTION AND PURPOSE. (a) This chapter
may be cited as the Insurer Receivership Act.
(b) This chapter may not be interpreted to limit the powers
granted the commissioner under other provisions of law.
(c) This chapter shall be liberally construed to support the
purpose stated in Subsection (e).
(d) All powers and authority of a receiver under this
chapter are cumulative and are in addition to all powers and
authority that are available to a receiver under law other than this
chapter.
(e) The purpose of this chapter is to protect the interests
of insureds, claimants, creditors, and the public generally,
through:
(1) early detection of any potentially hazardous
condition in an insurer and prompt application of appropriate
corrective measures;
(2) improved methods for conserving and
rehabilitating insurers;
(3) enhanced efficiency and economy of liquidation,
through clarification of the law, to minimize legal uncertainty and
litigation;
(4) apportionment of any unavoidable loss in
accordance with the statutory priorities set out in this chapter;
(5) lessening the problems of interstate receivership
by:
(A) facilitating cooperation between states in
delinquency proceedings; and
(B) extending the scope of personal jurisdiction
over debtors of the insurer located outside this state;
(6) regulation of the business of insurance by the
impact of the law relating to delinquency procedures and related
substantive rules; and
(7) providing for a comprehensive scheme for the
receivership of insurers and those subject to this chapter as part
of the regulation of the business of insurance in this state because
proceedings in cases of insurer insolvency and delinquency are
deemed an integral aspect of the business of insurance and are of
vital public interest and concern.
Sec. 21A.002. CONFLICTS OF LAW. This chapter and the state
law governing insurance guaranty associations constitute this
state's insurer receivership laws and shall be construed together
in a manner that is consistent. In the event of a conflict between
the insurer receivership laws and the provisions of any other law,
the insurer receivership laws prevail.
Sec. 21A.003. COVERED PERSONS. The provisions of this
chapter apply to all:
(1) insurers who are doing or have done an insurance
business in this state and against whom claims arising from that
business may exist now or in the future and to all persons subject
to examination by the commissioner;
(2) insurers who purport to do an insurance business
in this state;
(3) insurers who have insureds resident in this state;
(4) other persons organized or doing insurance
business, or in the process of organizing with the intent to do
insurance business in this state;
(5) nonprofit health corporations and all fraternal
benefit societies subject to Chapters 844 and 885, respectively;
(6) title insurance companies subject to Title 11;
(7) health maintenance organizations subject to
Chapter 843; and
(8) surety and trust companies subject to Chapter 7,
general casualty companies subject to Chapter 861, statewide mutual
assessment companies subject to Chapter 881, mutual insurance
companies subject to Chapter 882 or 883, local mutual aid
associations subject to Chapter 886, burial associations subject to
Chapter 888, farm mutual insurance companies subject to Chapter
911, county mutual insurance companies subject to Chapter 912,
Lloyd's plans subject to Chapter 941, reciprocal or interinsurance
exchanges subject to Chapter 942, and fidelity, guaranty, and
surety companies.
Sec. 21A.004. DEFINITIONS. (a) For the purposes of this
chapter:
(1) "Affiliate," "control," and "subsidiary" have the
meanings assigned by Chapter 823.
(2) "Alien insurer" means an insurer incorporated or
organized under the laws of a jurisdiction that is not a state.
(3) "Creditor" or "claimant" means a person having any
claim against an insurer, whether the claim is matured or not,
liquidated or unliquidated, secured or unsecured, absolute, fixed,
or contingent.
(4) "Delinquency proceeding" means any proceeding
instituted against an insurer for the purpose of liquidating,
rehabilitating, or conserving the insurer, and any proceeding under
Section 21A.051.
(5) "Doing business," including "doing insurance
business" and the "business of insurance," includes any of the
following acts, whether effected by mail, electronic means, or
otherwise:
(A) the issuance or delivery of contracts of
insurance, either to persons resident or covering a risk located in
this state;
(B) the solicitation of applications for
contracts described by Paragraph (A) or other negotiations
preliminary to the execution of the contracts;
(C) the collection of premiums, membership fees,
assessments, or other consideration for contracts described by
Paragraph (A);
(D) the transaction of matters subsequent to the
execution of contracts described by Paragraph (A) and arising out
of those contracts; or
(E) operating as an insurer under a certificate
of authority issued by the department.
(6) "Domiciliary state" means the state in which an
insurer is incorporated or organized or, in the case of an alien
insurer, its state of entry.
(7) "Foreign insurer" means an insurer domiciled in
another state.
(8) "Formal delinquency proceeding" means any
rehabilitation or liquidation proceeding.
(9) "General assets" includes:
(A) all property of the estate that is not:
(i) subject to a secured claim or a valid
and existing express trust for the security or benefit of specified
persons or classes of persons; or
(ii) required by the insurance laws of this
state or any other state to be held for the benefit of specified
persons or classes of persons; and
(B) all property of the estate and the proceeds
of that property in excess of the amount necessary to discharge any
secured claims described by Paragraph (A).
(10) "Good faith" means honesty in fact and intention,
and for the purposes of Subchapter F also requires the absence of:
(A) information that would lead a reasonable
person in the same position to know that the insurer is financially
impaired or insolvent; and
(B) knowledge regarding the imminence or
pendency of any delinquency proceeding against the insurer.
(11) "Guaranty association" means any mechanism
mandated by Article 21.28-C or 21.28-D, Chapter 2602, or other laws
of this state or a similar mechanism in another state that is
created for the payment of claims or continuation of policy
obligations of financially impaired or insolvent insurers.
(12) "Impaired" means that an insurer does not have
admitted assets at least equal to all its liabilities together with
the minimum surplus required to be maintained under this code.
(13) "Insolvency" or "insolvent" means an insurer:
(A) is unable to pay its obligations when they
are due;
(B) does not have admitted assets at least equal
to all its liabilities; or
(C) has a total adjusted capital that is less
than that required under:
(i) Chapter 822, 841, or 843, as
applicable; or
(ii) applicable rules or guidelines adopted
by the commissioner under Section 822.210, 841.205, or 843.404.
(14) "Insurer" means any person that has done,
purports to do, is doing, or is authorized to do the business of
insurance in this state, and is or has been subject to the authority
of or to liquidation, rehabilitation, reorganization, supervision,
or conservation by any insurance commissioner. For purposes of
this chapter, any other persons included under Section 21A.003 are
insurers.
(15) "Netting agreement" means a contract or
agreement, including terms and conditions incorporated by
reference in a contract or agreement, and a master agreement (which
master agreement, together with all schedules, confirmations,
definitions, and addenda to the agreement and transactions under
the agreement, schedules, confirmations, definitions, or addenda,
are to be treated as one netting agreement) that documents one or
more transactions between the parties to the contract or agreement
for or involving one or more qualified financial contracts and
that, among the parties to the netting agreement, provides for the
netting or liquidation of qualified financial contracts, present or
future payment obligations, or payment entitlements under the
contract or agreement, including liquidation or close-out values
relating to the obligations or entitlements.
(16) "New value" means money, money's worth in goods,
services, or new credit, or release by a transferee of property
previously transferred to the transferee in a transaction that is
neither void nor voidable by the insurer or the receiver under any
applicable law, including proceeds of the property. The term does
not include an obligation substituted for an existing obligation.
(17) "Party in interest" means the commissioner, a 10
percent or greater equity security holder in the insolvent insurer,
any affected guaranty association, any nondomiciliary commissioner
for a jurisdiction in which the insurer has outstanding claims
liabilities, and any of the following parties that have filed a
request for inclusion on the service list under Section 21A.007:
(A) an insurer that ceded to or assumed business
from the insolvent insurer; and
(B) an equity shareholder, policyholder,
third-party claimant, creditor, and any other person, including any
indenture trustee, with a financial or regulatory interest in the
receivership proceeding.
(18) "Person" means individual, aggregation of
individuals, partnership, corporation, or other entity.
(19) "Policy" means a written contract of insurance,
written agreement for or effecting insurance, or the certificate
for or effecting insurance, by whatever name. The term includes all
clauses, riders, endorsements, and papers that are a part of the
contract, agreement, or certificate. The term does not include a
contract of reinsurance.
(20) "Property of the insurer" or "property of the
estate" includes:
(A) all right, title, and interest of the insurer
in property, whether legal or equitable, tangible or intangible,
choate or inchoate, and includes choses in action, contract rights,
and any other interest recognized under the laws of this state;
(B) entitlements that:
(i) existed prior to the entry of an order
of rehabilitation or liquidation; and
(ii) may arise by operation of the
provisions of this chapter or other provisions of law allowing the
receiver to avoid prior transfers or assert other rights; and
(C) all records and data that are otherwise the
property of the insurer, in whatever form maintained, within the
possession, custody, or control of a managing general agent,
third-party administrator, management company, data processing
company, accountant, attorney, affiliate, or other person,
including:
(i) claims and claim files;
(ii) policyholder lists;
(iii) application files;
(iv) litigation files;
(v) premium records;
(vi) rate books and underwriting manuals;
(vii) personnel records; and
(viii) financial records or similar
records.
(21) "Qualified financial contract" means a commodity
contract, forward contract, repurchase agreement, securities
contract, swap agreement, and any similar agreement that the
commissioner determines by rule to be a qualified financial
contract for the purposes of this chapter.
(22) "Receiver" means liquidator, rehabilitator, or
ancillary conservator, as the context requires.
(23) "Receivership" means any liquidation,
rehabilitation, or ancillary conservation, as the context
requires.
(24) "Receivership court" refers to the court in which
a delinquency proceeding is pending, unless the context requires
otherwise.
(25) "Reinsurance" means transactions or contracts by
which an assuming insurer agrees to indemnify a ceding insurer
against all, or a part, of any loss that the ceding insurer might
sustain under the policy or policies that it has issued or will
issue.
(26) "Secured claim" means any claim secured by an
asset that is not a general asset. The term includes the right to
set off as provided in Section 21A.209. The term does not include a
claim arising from a constructive or resulting trust, a special
deposit claim, or a claim based on mere possession.
(27) "Special deposit" means a deposit established
pursuant to statute for the security or benefit of a limited class
or limited classes of persons.
(28) "Special deposit claim" means any claim secured
by a special deposit. The term does not include any claim secured
by the general assets of the insurer.
(29) "State" means any state, district, or territory
of the United States.
(30) "Transfer" includes the sale and every other and
different mode, direct or indirect, of disposing of or of parting
with property or with an interest in property, including a setoff,
or with the possession of property or of fixing a lien upon property
or upon an interest in property, absolutely or conditionally,
voluntarily or involuntarily, by or without judicial proceedings.
The retention of a security title in property delivered to an
insurer is deemed a transfer suffered by the insurer.
(31) "Unauthorized insurer" means an insurer doing the
business of insurance in this state that has not received from this
state a certificate of authority or some other type of authority
that allows for doing the business of insurance in this state.
(b) For purposes of this chapter, "admitted assets" and
"liabilities" have the meanings assigned by the department in rules
relating to risk-based capital.
(c) For purposes of Subsection (a)(21):
(1) "Commodity contract" means:
(A) a contract for the purchase or sale of a
commodity for future delivery on or subject to the rules of a board
of trade designated as a contract market by the Commodity Futures
Trading Commission under the Commodity Exchange Act (7 U.S.C.
Section 1 et seq.) or a board of trade outside the United States;
(B) an agreement that is subject to regulation
under Section 19, Commodity Exchange Act (7 U.S.C. Section 23), and
that is commonly known to the commodities trade as a margin account,
margin contract, leverage account, or leverage contract; or
(C) an agreement or transaction that is subject
to regulation under Section 4c(b), Commodity Exchange Act (7 U.S.C.
Section 6c(b)), and that is commonly known to the commodities trade
as a commodity option.
(2) "Forward contract" means a contract, other than a
commodity contract, with a maturity date more than two days after
the date the contract is entered into, that is for the purchase,
sale, or transfer of a commodity, as defined by Section 1a,
Commodity Exchange Act (7 U.S.C. Section 1a), or any similar good,
article, service, right, or interest that is presently or in the
future becomes the subject of dealing in the forward contract trade
or product or byproduct of the contract. The term includes a
repurchase transaction, reverse repurchase transaction,
consignment, lease, swap, hedge transaction, deposit, loan,
option, allocated transaction, unallocated transaction, or a
combination of these or option on any of them.
(3) "Repurchase agreement" includes a reverse
repurchase agreement and means an agreement, including related
terms, that provides for the transfer of certificates of deposit,
eligible bankers' acceptances, or securities that are direct
obligations of or that are fully guaranteed as to principal and
interest by the United States against the transfer of funds by the
transferee of the certificates of deposit, eligible bankers'
acceptances, or securities with a simultaneous agreement by the
transferee to transfer to the transferor certificates of deposit,
eligible bankers' acceptances, or securities as described in this
subdivision, on demand or at a date certain not later than one year
after the transfers, against the transfer of funds. For the
purposes of this subdivision, the items that may be subject to a
repurchase agreement:
(A) include mortgage-related securities and a
mortgage loan and an interest in a mortgage loan; and
(B) do not include any participation in a
commercial mortgage loan unless the commissioner determines by rule
to include the participation within the meaning of the term.
(4) "Securities contract" means a contract for the
purchase, sale, or loan of a security, including an option for the
repurchase or sale of a security, certificate of deposit, or group
or index of securities or an interest in the group or index or based
on the value of the group or index, an option entered into on a
national securities exchange relating to foreign currencies, or the
guarantee of a settlement of cash or securities by or to a
securities clearing agency. For the purposes of this subdivision,
the term "security" includes a mortgage loan, a mortgage-related
security, and an interest in any mortgage loan or mortgage-related
security.
(5) "Swap agreement" means an agreement, including the
terms and conditions incorporated by reference in an agreement,
that is a rate swap agreement, basis swap, commodity swap, forward
rate agreement, interest rate future, interest rate option, forward
foreign exchange agreement, spot foreign exchange agreement, rate
cap agreement, rate floor agreement, rate collar agreement,
currency swap agreement, cross-currency rate swap agreement,
currency future, or currency option or any other similar agreement.
The term includes any combination agreements described by this
subdivision and an option to enter into any agreement described by
this subdivision.
(d) The definitions under this section apply only to this
chapter unless the context of another law requires otherwise.
Sec. 21A.005. JURISDICTION AND VENUE. (a) A delinquency
proceeding may not be commenced under this chapter by a person other
than the commissioner, and a court does not have jurisdiction to
entertain, hear, or determine any delinquency proceeding commenced
by any other person.
(b) A court of this state does not have jurisdiction, other
than in accordance with this chapter, to entertain, hear, or
determine any complaint praying for:
(1) the liquidation, rehabilitation, seizure,
sequestration, conservation, or receivership of any insurer; or
(2) a stay, injunction, restraining order, or other
relief preliminary, incidental, or relating to proceedings
described by Subdivision (1).
(c) The receivership court, as of the commencement of a
delinquency proceeding under this chapter, has exclusive
jurisdiction of all property of the insurer, wherever located,
including property located outside the territorial limits of the
state. The receivership court has original but not exclusive
jurisdiction of all civil proceedings arising:
(1) under this chapter; or
(2) in or related to delinquency proceedings under
this chapter.
(d) In addition to other grounds for jurisdiction provided
by the law of this state, a court having jurisdiction of the subject
matter has jurisdiction over a person served pursuant to Rules 21
and 21a, Texas Rules of Civil Procedure, or other applicable
provisions of law in an action brought by the receiver if the person
served:
(1) is or has been an agent, or other person who, at
any time, has written policies of insurance for or has acted in any
manner on behalf of an insurer against which a delinquency
proceeding has been instituted, in any action resulting from or
incident to such a relationship with the insurer;
(2) is or has been an insurer or reinsurer who, at any
time, has entered into a contract of reinsurance with an insurer
against which a delinquency proceeding has been instituted, or who
is an agent of or for the reinsurer, in any action on or incident to
the reinsurance contract;
(3) is or has been an officer, director, manager,
trustee, organizer, promoter, or other person in a position of
comparable authority or influence over an insurer against which a
delinquency proceeding has been instituted, in any action resulting
from or incident to such a relationship with the insurer;
(4) at the time of the institution of the delinquency
proceeding against the insurer, is or was holding assets in which
the receiver claims an interest on behalf of the insurer in any
action concerning the assets; or
(5) is obligated to the insurer in any way, in any
action on or incident to the obligation.
(e) If, on motion of any party, the receivership court finds
that any action, as a matter of substantial justice, should be tried
in a forum outside this state, the receivership court may enter an
appropriate order to stay further proceedings on the action in this
state. Except as to claims against the estate, nothing in this
chapter deprives a party of any contractual right to pursue
arbitration. A party in arbitration may bring a claim or
counterclaim against the estate, but the claim or counterclaim is
subject to Section 21A.209.
(f) Service must be made upon the person named in the
petition in accordance with Rules 21 and 21a, Texas Rules of Civil
Procedure. In lieu of such service, upon application to the
receivership court, service may be made in any manner the
receivership court directs if it is satisfactorily shown by
affidavit:
(1) in the case of a corporation, that the officers of
the corporation cannot be served because they have departed from
the state or otherwise concealed themselves with intent to avoid
service;
(2) in the case of a Lloyd's plan or reciprocal or
interinsurance exchange, that the individual attorney in fact or
the officers of the corporate attorney in fact cannot be served
because of departure or concealment; or
(3) in the case of an individual, that the person
cannot be served because of the individual's departure or
concealment.
(g) An action authorized by this section must be brought in
a district court in Travis County.
(h) At any time after an order is entered pursuant to
Section 21A.051, 21A.101, or 21A.151, the commissioner or receiver
may transfer the case to the county of the principal office of the
person proceeded against. In the event of transfer, the court in
which the proceeding was commenced, upon application of the
commissioner or receiver, shall direct its clerk to transmit the
court's file to the clerk of the court to which the case is to be
transferred. The proceeding, after transfer, shall be conducted in
the same manner as if it had been commenced in the court to which the
matter is transferred.
(i) A person may not intervene in any delinquency proceeding
in this state for the purpose of seeking or obtaining payment of any
judgment, lien, or other claim of any kind. The claims procedure
set forth in this chapter constitutes the exclusive means for
obtaining payment of claims from the receivership estate. This
provision is not intended to affect the rights conferred on the
guaranty associations by Section 21A.008(l).
(j) The foregoing provisions of this section
notwithstanding, the provisions of this chapter do not confer
jurisdiction on the receivership court to resolve coverage disputes
between guaranty associations and those asserting claims against
them resulting from the initiation of a delinquency proceeding
under this chapter. The determination of any dispute with respect
to the statutory coverage obligations of any guaranty association
by a court or administrative agency or body with jurisdiction in the
guaranty association's state of domicile is binding and conclusive
as to the parties in a delinquency proceeding initiated in the
receivership court, including the policyholders of the insurer.
With respect to a guaranty association's obligations under a
rehabilitation plan, the receivership court has jurisdiction only
if the guaranty association expressly consents to the jurisdiction
of the court.
Sec. 21A.006. EXEMPTION FROM FEES. The receiver may not be
required to pay any filing, recording, transcript, or
authenticating fee to any public officer in this state.
Sec. 21A.007. NOTICE, HEARING, AND APPEAL ON MATTERS
SUBMITTED BY RECEIVER FOR RECEIVERSHIP COURT APPROVAL. (a) Upon
written request to the receiver, a person must be placed on the
service list to receive notice of matters filed by the receiver. It
is the responsibility of the person requesting notice to inform the
receiver in writing of any changes in the person's address or to
request that the person's name be deleted from the service list.
The receiver may require that the persons on the service list
provide confirmation that they wish to remain on the service list.
Any person who fails to confirm the person's intent to remain on the
service list may be purged from the service list. Inclusion on the
service list does not confer standing in the delinquency proceeding
to raise, appear, or be heard on any issue.
(b) Except as otherwise provided by this chapter, notice and
hearing of any matter submitted by the receiver to the receivership
court for approval under this chapter must be conducted in
accordance with Subsections (c)-(g).
(c) The receiver shall file an application explaining the
proposed action and the basis of the proposed action. The receiver
may include any evidence in support of the application. If the
receiver determines that any documents supporting the application
are confidential, the receiver may submit them to the receivership
court under seal for in camera inspection.
(d) The receiver shall provide notice of the application to
all persons on the service list and any other parties as determined
by the receiver. Notice may be provided by first class mail postage
paid, electronic mail, or facsimile transmission, at the receiver's
discretion. For purposes of this section, notice is deemed to be
given on the date that it is deposited with the U.S. Postmaster or
transmitted, as applicable, to the last known address as shown on
the service list.
(e) Any party in interest objecting to the application must
file an objection specifying the grounds for the objection not
later than the 20th day after the date of the notice of the filing of
the application or within another period as the receivership court
may set, and must serve copies on the receiver and any other persons
served with the application within the same period. An objecting
party has the burden of showing why the receivership court should
not authorize the proposed action.
(f) If no objection to the application is timely filed, the
receivership court may enter an order approving the application
without a hearing, or hold a hearing to determine if the receiver's
application should be approved. The receiver may request that the
receivership court enter an order or hold a hearing on an expedited
basis.
(g) If an objection is timely filed, the receivership court
may hold a hearing. If the receivership court approves the
application and, upon a motion by the receiver, determines that the
objection was frivolous or filed merely for delay or for another
improper purpose, the receivership court shall order the objecting
party to pay the receiver's reasonable costs and fees of defending
the action.
Sec. 21A.008. INJUNCTIONS AND ORDERS. (a) The
receivership court may issue any order, process, or judgment,
including stays, injunctions, or other orders, as necessary or
appropriate to carry out the provisions of this chapter or an
approved rehabilitation plan.
(b) This chapter may not be construed to limit the ability
of the receiver to apply to a court other than the receivership
court in any jurisdiction to carry out any provision of this chapter
or for the purpose of pursuing claims against any person.
(c) Except as provided by Subsection (e) or as otherwise
provided by this chapter and subject to Subsection (g), the
commencement of a delinquency proceeding under this chapter
operates as a stay, applicable to all persons, of:
(1) the commencement or continuation, including the
issuance or employment of process, of a judicial, administrative,
or other action or proceeding against the insurer, including an
arbitration proceeding, that was or could have been commenced
before the commencement of the delinquency proceeding under this
chapter, or to recover a claim against the insurer that arose before
the commencement of the delinquency proceeding under this chapter;
(2) the enforcement against the insurer or against
property of the insurer of a judgment obtained before the
commencement of the delinquency proceeding under this chapter;
(3) any act to obtain or retain possession of property
of the insurer or of property from the insurer or to exercise
control over property or records of the insurer;
(4) any act to create, perfect, or enforce any lien
against property of the insurer;
(5) any act to collect, assess, or recover a claim
against the insurer that arose before the commencement of a
delinquency proceeding under this chapter;
(6) the commencement or continuation of an action or
proceeding against a reinsurer of the insurer, by the holder of a
claim against the insurer, seeking reinsurance recoveries that are
contractually due to the insurer; and
(7) except as provided by Subsection (e)(1), the
commencement or continuation of an action or proceeding by a
governmental unit to terminate or revoke an insurance license.
(d) Except as provided in Subsection (e) or as otherwise
provided by this chapter, the commencement of a delinquency
proceeding under this chapter operates as a stay, applicable to all
persons, of any judicial, administrative, or other action or
proceeding, including the enforcement of any judgment, against any
insured that was or could have been commenced before the
commencement of the delinquency proceeding under this chapter, or
to recover a claim against the insured that arose before or after
the commencement of the delinquency proceeding under this chapter
and for which the insurer is or may be liable under a policy of
insurance or is obligated to defend a party. The stay provided by
this subsection terminates 90 days after the date of appointment of
the receiver, unless, for good cause shown, the stay is extended by
order of the receivership court after notice to any affected
parties and any hearing the receivership court determines is
appropriate.
(e) Notwithstanding Subsection (c), the commencement of a
delinquency proceeding under this chapter does not operate as a
stay of:
(1) regulatory actions not described by Subsection
(c)(7) that are taken by the commissioners of nondomiciliary
states, including the suspension of licenses;
(2) criminal proceedings;
(3) any act to perfect or to maintain or continue the
perfection of an interest in property to the extent that the act is
accomplished within any relation back period under applicable law;
(4) set off as permitted by Section 21A.209;
(5) pursuit and enforcement of nonmonetary
governmental claims, judgments, and proceedings;
(6) presentment of a negotiable instrument and the
giving of notice and protesting dishonor of the instrument;
(7) enforcement of rights against single beneficiary
trusts established pursuant to and in compliance with laws relating
to credit for reinsurance;
(8) termination, liquidation, and netting of
obligations under qualified financial contracts as provided for in
Section 21A.261;
(9) discharge by a guaranty association of statutory
responsibilities under any law governing guaranty associations; or
(10) any of the following actions:
(A) an audit by a governmental unit to determine
tax liability;
(B) the issuance to the insurer by a governmental
unit of a notice of tax deficiency;
(C) a demand for tax returns; or
(D) the making of an assessment for any tax and
issuance of a notice and demand for payment of the assessment.
(f) Except as provided by Subsection (h):
(1) the stay of an act against property of the insurer
under Subsection (c) continues until the property is no longer
property of the receivership estate; and
(2) the stay of any other act under Subsection (c)
continues until the earlier of the time the delinquency proceeding
is closed or dismissed.
(g) Notwithstanding the provisions of Subsection (c),
claims against the insurer that arose before the commencement of
the delinquency proceeding under this chapter may be asserted as a
counterclaim in any judicial, administrative, or other action or
proceeding initiated by or on behalf of the receiver against the
holder of the claims.
(h) On request of a party in interest and after notice and
any hearing the receivership court determines is appropriate, the
receivership court may grant relief from the stay of Subsection (c)
or (d), such as by terminating, annulling, modifying, or
conditioning the stay:
(1) for cause as described by Subsection (i); or
(2) with respect to a stay of an act against property
under Subsection (c) if:
(A) the insurer does not have equity in the
property; and
(B) the property is not necessary to an effective
rehabilitation plan.
(i) For purposes of Subsection (h), "cause" includes the
receiver canceling a policy, surety bond, or surety undertaking if
the creditor is entitled, by contract or by law, to require the
insured or the principal to have a policy, surety bond, or surety
undertaking and the insured or the principal fails to obtain a
replacement policy, surety bond, or surety undertaking not later
than the later of:
(1) the 30th day after the date the receiver cancels
the policy, surety bond, or surety undertaking; or
(2) the time permitted by contract or law.
(j) In any hearing under Subsection (h), the party seeking
relief from the stay has the burden of proof on each issue, which
must be established by clear and convincing evidence.
(k) The estate of an insurer that is injured by any wilful
violation of a stay provided by this section is entitled to actual
damages, including costs and attorney's fees. In appropriate
circumstances, the receivership court may impose additional
sanctions.
(l) Any guaranty association or its designated
representative may intervene as a party as a matter of right or
otherwise appear and participate in any court proceeding concerning
a delinquency proceeding if the association is or may become liable
to act as a result of the rehabilitation or liquidation of the
insurer. Exercise by any guaranty association or its designated
representative of the right to intervene conferred under this
subsection does not constitute grounds to establish general
personal jurisdiction by the courts of this state. The intervening
guaranty association or its designated representative are subject
to the receivership court's jurisdiction for the limited purpose
for which it intervenes.
(m) Notwithstanding any other provision of law, bond may not
be required of the commissioner or receiver in relation to any stay
or injunction under this section.
Sec. 21A.009. STATUTES OF LIMITATIONS. (a) If applicable
law, an order, or an agreement fixes a period within which the
insurer may commence an action, and this period has not expired
before the date of the filing of the initial petition in a
delinquency proceeding, the receiver may commence an action only
before the later of:
(1) the end of the period, including any suspension of
the period occurring on or after the filing of the initial petition
in a delinquency proceeding; or
(2) four years after the later of the date of entry of
an order for either rehabilitation or liquidation.
(b) Except as provided by Subsection (a), if applicable law,
an order, or an agreement fixes a period within which the insurer
may file any pleading, demand, notice, or proof of claim or loss,
cure a default in a case or proceeding, or perform any other similar
act, and the period has not expired before the date of the filing of
the petition initiating formal delinquency proceedings, the
receiver may file, cure, or perform, as the case may be, only before
the later of:
(1) the end of the period, including any suspension of
the period occurring on or after the filing of the initial petition
in the delinquency proceeding; or
(2) 60 days after the later of the date of entry of an
order for either rehabilitation or liquidation.
(c) If applicable law, an order, or an agreement fixes a
period for commencing or continuing a civil action in a court other
than the receivership court on a claim against the insurer, and the
period has not expired before the date of the initial filing of the
petition in a delinquency proceeding, then the period does not
expire until the later of:
(1) the end of the period, including any suspension of
the period occurring on or after the filing of the initial petition
in the delinquency proceeding; or
(2) 30 days after termination or expiration of the
stay under Section 21A.008 with respect to the claim.
(d) If the otherwise applicable limitations period has not
expired prior to the initial filing of the petition commencing a
delinquency proceeding, any other action or proceeding filed by a
receiver may be commenced at any time within four years after the
date upon which the cause of action accrues or four years after the
date on which the receiver is appointed, whichever is later.
Sec. 21A.010. COOPERATION OF OFFICERS, OWNERS, AND
EMPLOYEES. (a) Any present or former officer, manager, director,
trustee, owner, employee, or agent of any insurer, or any other
persons with authority over or in charge of any segment of the
insurer's affairs, shall cooperate with the commissioner or
receiver in any proceeding under this chapter or any investigation
preliminary to the proceeding. For purposes of this section:
(1) "person" includes any person who exercises control
directly or indirectly over activities of the insurer through any
holding company or other affiliate of the insurer; and
(2) "cooperate" includes:
(A) replying promptly in writing to any inquiry
from the commissioner or receiver requesting the reply; and
(B) promptly making available to the
commissioner or receiver any books, accounts, documents, or other
records or information or property of or pertaining to the insurer
and in the person's possession, custody, or control.
(b) A person may not obstruct or interfere with the
commissioner or receiver in the conduct of any delinquency
proceeding or any preliminary or incidental investigation.
(c) This section may not be construed to abridge otherwise
existing legal rights, including the right to resist a petition for
liquidation or other delinquency proceedings, or other orders.
(d) Any person described by Subsection (a) who fails to
cooperate with the commissioner or receiver, or any person who
obstructs or interferes with the commissioner or receiver in the
conduct of any delinquency proceeding or any preliminary or
incidental investigation, or who violates any order validly issued
under this chapter:
(1) commits an offense; and
(2) is subject to the imposition by the commissioner
of an administrative penalty not to exceed $10,000 and subject to
the revocation or suspension of any licenses issued by the
commissioner in accordance with Chapters 82 and 84.
(e) An offense under Subsection (d) is punishable by a fine
not exceeding $10,000 or imprisonment for not more than one year, or
both fine and imprisonment.
Sec. 21A.011. ACTIONS BY AND AGAINST RECEIVER. (a) An
allegation by the receiver of improper or fraudulent conduct
against any person may not be the basis of a defense to the
enforcement of a contractual obligation owed to the insurer by a
third party, unless the conduct is found to have been materially and
substantially related to the contractual obligation for which
enforcement is sought.
(b) A prior wrongful or negligent action of any present or
former officer, manager, director, trustee, owner, employee, or
agent of the insurer may not be asserted as a defense to a claim by
the receiver under a theory of estoppel, comparative fault,
intervening cause, proximate cause, reliance, mitigation of
damages, or otherwise, except that the affirmative defense of fraud
in the inducement may be asserted against the receiver in a claim
based on a contract, and a principal under a surety bond or a surety
undertaking is entitled to credit against any reimbursement
obligation to the receiver for the value of any property pledged to
secure the reimbursement obligation to the extent that the receiver
has possession or control of the property or that the insurer or its
agents commingled or otherwise misappropriated the property.
Evidence of fraud in the inducement is admissible only if the
evidence is contained in the records of the insurer.
(c) An action or inaction by the department or the insurance
regulatory authorities in any state may not be asserted as a defense
to a claim by the receiver.
(d) Except as provided by Subsection (e), a judgment or
order entered against an insured or the insurer in contravention of
any stay or injunction under this chapter, or at any time by default
or collusion, may not be considered as evidence of liability or of
the amount of damages in adjudicating claims filed in the estate
arising out of the subject matter of the judgment or order.
(e) Subsection (d) does not apply to guaranty associations'
claims for amounts paid on settlements and judgments in pursuit of
their statutory obligations.
(f) The receiver may not be deemed a governmental entity for
the purposes of any state law awarding fees to a litigant who
prevails against a governmental entity.
Sec. 21A.012. UNRECORDED OBLIGATIONS AND DEFENSES OF
AFFILIATES. (a) In any proceeding or claim by the receiver, an
affiliate, controlled or controlling person, or present or former
officer, manager, director, trustee, or shareholder of the insurer
may not assert any defense, unless evidence of the defense was
recorded in the books and records of the insurer at or about the
time the events giving rise to the defense occurred and, if required
by statutory accounting practices and procedures, was timely
reported on the insurer's official financial statements filed with
the department.
(b) An affiliate, controlled or controlling person, or
present or former officer, manager, director, trustee, or
shareholder of the insurer may not assert any claim, unless the
obligations were recorded in the books and records of the insurer at
or about the time the obligations were incurred and, if required by
statutory accounting practices and procedures, were timely
reported on the insurer's official financial statements filed with
the department.
(c) Claims by the receiver against any affiliate,
controlled or controlling person, or present or former officer,
manager, director, trustee, or shareholder of the insurer based on
unrecorded or unreported transactions are not barred by this
section.
Sec. 21A.013. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
(a) The receiver may assume or reject any executory contract or
unexpired lease of the insurer.
(b) Neither the filing of a petition commencing delinquency
proceedings under this chapter nor the entry of an order for a
delinquency proceeding constitutes a breach or anticipatory breach
of any contract or lease of the insurer.
(c) If there has been a default in an executory contract or
unexpired lease of the insurer, the receiver may not assume the
contract or lease unless, at the time of the assumption of the
contract or lease, the receiver:
(1) cures or provides adequate assurance that the
receiver will promptly cure the default; and
(2) provides adequate assurance of future performance
under the contract or lease.
(d) Subsection (c) does not apply to a default that is a
breach of a provision relating to:
(1) the insolvency or financial condition of the
insurer at any time before the closing of the delinquency
proceeding;
(2) the appointment of or taking possession by a
receiver in a case under this chapter or a custodian before the
commencement of the delinquency proceeding; or
(3) the satisfaction of any penalty rate or provision
relating to a default arising from any failure of the insurer to
perform nonmonetary obligations under the executory contract or
unexpired lease.
(e) A claim arising from the rejection, under this section
or a plan of rehabilitation, of an executory contract or unexpired
lease of the insurer that has not been assumed shall be determined,
treated, and classified as if the claim had arisen before the date
of the filing of a successful petition commencing the delinquency
proceeding.
Sec. 21A.0135. CONTRACTS FOR SPECIAL DEPUTIES. (a) The
receiver shall use a competitive bidding process in the selection
of any special deputies appointed under Section 21A.102 or 21A.154.
The process must include procedures to promote the participation of
historically underutilized businesses that have been certified by
the Texas Building and Procurement Commission under Section
2161.061, Government Code.
(b) A proposal submitted in connection with a bid
solicitation under Subsection (a) must describe the efforts that
have been made to include historically underutilized businesses as
subcontractors and the plan for using the historically
underutilized businesses in the administration of the receivership
estate. A special deputy appointed under Section 21A.102 or
21A.154 shall make a good faith effort to implement the plan and
shall report to the receiver the special deputy's efforts to
identify and subcontract with historically underutilized
businesses.
Sec. 21A.014. IMMUNITY AND INDEMNIFICATION OF RECEIVER AND
ASSISTANTS. (a) For the purposes of this section, the persons
entitled to immunity and indemnification and those entitled to
immunity only, as applicable, are:
(1) all present and former receivers responsible for
the conduct of a delinquency proceeding under this chapter;
(2) all of the receiver's present and former
assistants, including:
(A) all present and former special deputies and
assistant special deputies engaged by contract or otherwise;
(B) all persons whom the receiver, special
deputies, or assistant special deputies have employed to assist in
a delinquency proceeding under this chapter; and
(C) any state employees acting with respect to a
delinquency proceeding under this chapter; and
(3) all of the receiver's present and former
contractors, including all persons with whom the receiver, special
deputies, or assistant special deputies have contracted to assist
in a delinquency proceeding under this chapter, including
attorneys, accountants, auditors, actuaries, investment bankers,
financial advisors, and any other professionals or firms who are
retained or contracted with by the receiver as independent
contractors and all employees of the contractors.
(b) The receiver, the receiver's assistants, and the
receiver's contractors have immunity under this chapter, as
described by Subsections (c) and (d).
(c) The receiver, the receiver's assistants, and the
receiver's contractors are immune from suit and liability, both
personally and in their representative capacities, for any claim
for damage to or loss of property or personal injury or other civil
liability caused by or resulting from any alleged act, error, or
omission of the receiver or any assistant or contractor that arises
out of or by reason of their duties or employment or is taken at the
direction of the receivership court, providing that the alleged
act, error, or omission is performed in good faith.
(d) Any immunity granted by this section is in addition to
any immunity granted by other law.
(e) The receiver and the receiver's assistants are entitled
to indemnification under this chapter, as described by Subsections
(f)-(l).
(f) If any legal action is commenced against the receiver or
any assistant, whether against the receiver or assistant personally
or in their official capacity, alleging property damage, property
loss, personal injury, or other civil liability caused by or
resulting from any alleged act, error, or omission of the receiver
or any assistant arising out of or by reason of their duties or
employment, the receiver and any assistant are indemnified from the
assets of the insurer for all expenses, attorney's fees, judgments,
settlements, decrees, or amounts due and owing or paid in
satisfaction of or incurred in the defense of the legal action,
unless it is determined upon a final adjudication on the merits that
the alleged act, error, or omission of the receiver or assistant
giving rise to the claim:
(1) did not arise out of or by reason of their duties
or employment; or
(2) was caused by intentional or wilful and wanton
misconduct.
(g) Attorney's fees and any and all related expenses
incurred in defending a legal action for which immunity or
indemnity is available under this section must be paid from the
assets of the insurer, as the fees and expenses are incurred, and in
advance of the final disposition of the legal action upon receipt of
an agreement by or on behalf of the receiver or assistant to repay
the attorney's fees and expenses, if it is ultimately determined
upon a final adjudication on the merits that the receiver or
assistant is not entitled to immunity or indemnity under this
section.
(h) Any indemnification for expense payments, judgments,
settlements, decrees, attorney's fees, surety bond premiums, or
other amounts paid or to be paid from the insurer's assets pursuant
to this section are an administrative expense of the insurer.
(i) In the event of any actual or threatened litigation
against a receiver or any assistant for whom immunity or indemnity
may be available under this section, a reasonable amount of funds,
which in the judgment of the receiver may be needed to provide
immunity or indemnity, must be segregated and reserved from the
assets of the insurer as security for the payment of indemnity
until:
(1) all applicable statutes of limitation have run;
(2) all actual or threatened actions against the
receiver or any assistant have been completely and finally
resolved; and
(3) all obligations under this section have been
satisfied.
(j) Instead of segregating and reserving funds under
Subsection (i), the receiver may, in the receiver's discretion,
obtain a surety bond or make other arrangements that will enable the
receiver to secure fully the payment of all obligations under this
section.
(k) If any legal action against an assistant for whom
indemnity may be available under this section is settled prior to
final adjudication on the merits, the receiver must pay the
settlement amount on behalf of the assistant, or indemnify the
assistant for the settlement amount, unless the receiver determines
that the claim:
(1) did not arise out of or by reason of the
assistant's duties or employment; or
(2) was caused by the intentional or wilful and wanton
misconduct of the assistant.
(l) In any legal action in which a claim is asserted against
the receiver, that portion of any settlement relating to the
alleged act, error, or omission of the receiver is subject to the
approval of the receivership court. The receivership court may not
approve that portion of the settlement if it determines that the
claim:
(1) did not arise out of or by reason of the receiver's
duties or employment; or
(2) was caused by the intentional or wilful and wanton
misconduct of the receiver.
(m) Nothing contained or implied in this section may operate
or be construed or applied to deprive the receiver, the receiver's
assistants, or receiver's contractors of any immunity, indemnity,
benefits of law, rights, or defense otherwise available.
(n) The immunity and indemnification provided to the
receiver's assistants and the immunity provided to the receiver's
contractors under this section do not apply to any action by the
receiver against that person.
(o) Subsection (b) applies to any suit based in whole or in
part on any alleged act, error, or omission that takes place on or
after September 1, 2005.
(p) Subsections (e)-(l) apply to any suit that is pending on
or filed after September 1, 2005, without regard to when the alleged
act, error, or omission took place.
Sec. 21A.015. APPROVAL AND PAYMENT OF EXPENSES. (a) The
receiver may pay any expenses under contracts, leases, employment
agreements, or other arrangements entered into by the insurer prior
to receivership, as the receiver deems necessary for the purposes
of this chapter. The receiver is not required to pay any expenses
that the receiver determines are not necessary, and may reject any
contract pursuant to Section 21A.013.
(b) Receivership expenses other than those described in
Subsection (a) must be paid in accordance with Subsections (c)-(f).
(c) The receiver shall submit to the receivership court an
application pursuant to Section 21A.007 to approve:
(1) the terms of compensation of each special deputy
or contractor with respect to which the total amount of the
compensation is reasonably expected by the receiver for the
duration of the delinquency proceeding to exceed $250,000, or
another amount established by the receivership court; and
(2) any other anticipated expense in excess of
$25,000, or another amount established by the receivership court.
(d) The receiver may, as the receiver deems appropriate,
submit an application to approve any compensation, anticipated
expenses, or incurred expenses not described by Subsection (c)(1).
(e) The receiver may pay any expenses not requiring
receivership court approval and any expenses approved by the
rehabilitation or liquidation order as the expenses are incurred.
(f) The approval of expenses by the receivership court does
not prejudice the right of the receiver to seek any recovery,
recoupment, disgorgement, or reimbursement of fees based on
contract or causes of action recognized in law or in equity.
(g) On a quarterly basis, or as otherwise provided by the
receivership court, the receiver shall submit to the receivership
court a report summarizing the expenses incurred during the period.
(h) Receivership court approval may not be required to pay
expenses incurred by the receiver in connection with the appeal of
an order of the receivership court.
(i) All expenses of receivership shall be paid from the
assets of the insurer, except as provided by this subsection. In
the event that the property of the insurer does not contain
sufficient cash or liquid assets to defray the expenses incurred,
the commissioner may advance funds from the account established
under Section 21A.304(c). Any amounts advanced shall be repaid to
the account out of the first available money of the insurer.
Sec. 21A.016. FINANCIAL REPORTING. (a) Not later than the
120th day after the date of entry of an order of receivership by the
receivership court, and at least quarterly after that date, the
receiver shall file a financial report with the receivership court.
A financial report filed under this subsection at a minimum, must
include:
(1) a statement of the assets and liabilities of the
insurer;
(2) the changes in those assets and liabilities; and
(3) all funds received or disbursed by the receiver
during the period covered by the report.
(b) The receivership court shall require a financial report
filed under Subsection (a) to comply with all receivership
financial reporting requirements specified by the National
Association of Insurance Commissioners and adopted in this state by
rule by the commissioner.
(c) Not later than the 120th day after the date of entry of
an order of liquidation by the receivership court, and at least
quarterly after that date, or at other intervals as may be agreed to
between the liquidator and the guaranty associations, but in no
event less than annually, each affected guaranty association shall
file reports with the liquidator. The reports must be in a format
compatible with that specified by the National Association of
Insurance Commissioners. Reports under this subsection shall be
filed with the receivership court.
Sec. 21A.017. RECORDS. (a) Upon entry of an order of
rehabilitation or liquidation, the receiver is vested with title to
all of the books, documents, papers, policy information, and claim
files, and all other records of the insurer, of whatever nature, in
whatever medium, and wherever located, regardless of whether the
records are in the custody and control of a third-party
administrator, managing general agent, attorney, or other
representative of the insurer. The receiver may immediately take
possession and control of all of the records of the insurer, and of
the premises where the records are located. A third-party
administrator, managing general agent, attorney, or other
representative of the insurer shall release all records described
by this subsection to the receiver, or the receiver's designee, at
the request of the receiver. A guaranty association that has or may
have obligations under a policy issued by the insurer has the right,
with the receiver's approval, to take actions as are necessary to
obtain directly from any third-party administrator, managing
general agent, attorney, or other representative of the insurer all
records described by this section that pertain to the insurer's
business and that are appropriate or necessary for the guaranty
association to fulfill the association's statutory obligations.
(b) The receiver has the authority to certify the records of
a delinquent insurer described by Subsection (a) and the records of
the receiver's office created and maintained in connection with a
delinquent insurer, as follows:
(1) records of a delinquent insurer may be certified
by the receiver in an affidavit stating that the records:
(A) are true and correct copies of records of the
insurer; and
(B) were received from the custody of the insurer
or found among its effects; and
(2) records created by or filed with the receiver's
office in connection with a delinquent insurer may be certified by
the receiver's affidavit stating that the records are true and
correct copies of records maintained by the receiver's office.
(c) Original books, documents, papers, and other records,
or copies of original records certified under Subsection (b), when
admitted in evidence, are prima facie evidence of the facts
disclosed.
(d) The records of a delinquent insurer held by the receiver
may not be considered records of the department for any purposes,
and Chapter 552, Government Code, does not apply to those records.
[Sections 21A.018-21A.050 reserved for expansion]
SUBCHAPTER B. PROCEEDINGS
Sec. 21A.051. RECEIVERSHIP COURT'S SEIZURE ORDER. (a) The
commissioner may file in a district court of Travis County a
petition with respect to an insurer domiciled in this state, an
unauthorized insurer, or, pursuant to Section 21A.401, a foreign
insurer:
(1) alleging that grounds exist that would justify a
court order for a formal delinquency proceeding against the insurer
under this chapter;
(2) alleging that the interests of policyholders,
creditors, or the public will be endangered by delay; and
(3) setting forth the contents of a seizure order
deemed to be necessary by the commissioner.
(b) Upon a filing under Subsection (a), the receivership
court may issue, ex parte and without notice or hearing, the
requested seizure order directing the commissioner to take
possession and control of all or a part of the property, books,
accounts, documents, and other records of an insurer, and of the
premises occupied by it for transaction of its business, and until
further order of the receivership court, enjoining the insurer and
its officers, managers, agents, and employees from disposition of
its property and from the transaction of its business except with
the written consent of the commissioner. Any person having
possession or control of and refusing to deliver any of the books,
records, or assets of a person against whom a seizure order has been
issued commits an offense. An offense under this subsection is
punishable in the manner described by Section 21A.010(e).
(c) A petition that prays for injunctive relief must be
verified by the commissioner or the commissioner's designee, but
need not plead or prove irreparable harm or inadequate remedy at
law. The commissioner shall provide only the notice as the
receivership court may require.
(d) The receivership court shall specify in the seizure
order the duration of the seizure order, which shall be a period the
receivership court deems necessary for the commissioner to
ascertain the condition of the insurer. On motion of the
commissioner or the insurer, or the court's own motion, the
receivership court may, from time to time, hold hearings as it deems
desirable after notice as it deems appropriate, and may extend,
shorten, or modify the terms of the seizure order. The receivership
court shall vacate the seizure order if the commissioner fails to
commence a formal delinquency proceeding under this chapter after
having had a reasonable opportunity to do so. An order of the
receivership court pursuant to a formal proceeding under this
chapter vacates the seizure order.
(e) Entry of a seizure order under this section does not
constitute a breach or an anticipatory breach of any contract of the
insurer.
(f) An insurer subject to an ex parte seizure order under
this section may petition the receivership court at any time after
the issuance of a seizure order for a hearing and review of the
seizure order. The receivership court shall hold the hearing and
conduct the review not later than the 15th day after the date of the
request. A hearing under this subsection may be held privately in
chambers, and a hearing shall be held privately in chambers if the
insurer proceeded against so requests.
(g) If, at any time after the issuance of a seizure order, it
appears to the receivership court that any person whose interest is
or will be substantially affected by the seizure order did not
appear at the hearing and has not been served, the receivership
court may order that notice be given to the person. An order that
notice be given does not stay the effect of any seizure order
previously issued by the receivership court.
(h) Whenever the commissioner makes any seizure as provided
by Subsection (b), on the demand of the commissioner, the sheriff of
any county and the police department of any municipality shall
furnish the commissioner with the deputies, patrolmen, or officers
as may be necessary to assist the commissioner in making and
enforcing the seizure order.
(i) In all proceedings and judicial reviews under this
section, all records of the insurer, department files, court
records and papers, and other documents, so far as they pertain to
or are a part of the record of the proceedings, are confidential,
and all papers filed with the clerk of the court shall be held by the
clerk in a confidential file as permitted by law, except to the
extent necessary to obtain compliance with any order entered in
connection with the proceedings, unless and until:
(1) the court, after hearing argument in chambers,
orders otherwise;
(2) the insurer requests that the matter be made
public; or
(3) the commissioner applies for an order under
Section 21A.057.
Sec. 21A.052. COMMENCEMENT OF FORMAL DELINQUENCY
PROCEEDING. (a) Any formal delinquency proceeding against a
person shall be commenced by filing a petition in the name of the
commissioner or department.
(b) The petition must state the grounds upon which the
proceeding is based and the relief requested and may include a
prayer for restraining orders and injunctive relief as described in
Section 21A.008. On the filing of the petition or order, a copy
shall be forwarded by first class mail or electronic communication
as permitted by the receivership court to the insurance regulatory
officials and guaranty associations in states in which the insurer
did business.
(c) Any petition that prays for injunctive relief must be
verified by the commissioner or the commissioner's designee, but
need not plead or prove irreparable harm or inadequate remedy at
law. The commissioner shall provide only the notice as the
receivership court may require.
(d) If any temporary restraining order is prayed for:
(1) the receivership court may issue an initial order
containing the relief requested;
(2) the receivership court shall set a time and date
for the return of summons, not later than 10 days after the time and
date of the issuance of the initial order, at which time the person
proceeded against may appear before the receivership court for a
summary hearing;
(3) the order must state the time and date of its
issuance; and
(4) the order may not continue in effect beyond the
time and date set for the return of summons, unless the receivership
court expressly enters one or more orders extending the restraining
order.
(e) If a temporary restraining order is not requested, the
receivership court shall cause summons to be issued. The summons
must specify a return date not later than the 30th day after the
date of issuance and that an answer must be filed at or before the
return date.
Sec. 21A.053. RETURN OF SUMMONS AND SUMMARY HEARING. (a)
The receivership court shall hold a summary hearing at the time and
date for the return of summons on a petition to commence a formal
delinquency proceeding.
(b) If a person is not served with summons on a petition to
commence a formal delinquency proceeding and fails to appear for
the summary hearing, the receivership court shall:
(1) continue the summary hearing not more than 10
days;
(2) provide for alternative service of summons upon
the person; and
(3) extend any restraining order.
(c) Upon a showing of good faith efforts to effect personal
service upon a person who has failed to appear for a continued
summary hearing, the receivership court shall order notice of the
petition to commence a formal delinquency proceeding to be
published. The order and notice shall specify a return date not
less than 10 or later than 20 days after the date of publication and
that the restraining order has been extended to the continued
hearing date.
(d) If a person fails to appear for a summary hearing on a
petition to commence a formal delinquency proceeding after service
of summons, the receivership court shall enter judgment in favor of
the commissioner against that person.
(e) A person who appears for the summary hearing on a
petition to commence a formal delinquency proceeding shall file the
person's answer at the hearing, and the receivership court shall:
(1) determine whether to extend any temporary
restraining orders pending final judgment; and
(2) set the case for trial on a date not later than 10
days after the date of the summary hearing.
(f) The receivership court may not grant a continuance for
filing an answer.
Sec. 21A.054. PROCEEDINGS FOR EXPEDITED TRIAL:
CONTINUANCES, DISCOVERY, EVIDENCE. (a) The receivership court
shall proceed to hear the case on the petition to commence a formal
delinquency proceeding at the time and date set forth for trial. To
the extent practicable, the receivership court shall give
precedence to the matter over all other matters. To the extent
authorized by law, the receivership court may assign the matter to
other judges if necessary to comply with the need for expedited
proceedings under this chapter.
(b) Continuances for trial may be granted only in extreme
circumstances.
(c) The receivership court shall admit into evidence, as
self-authenticated, certified copies of any of the following when
offered by the commissioner:
(1) the financial statements made by the insurer or an
affiliate;
(2) examination reports of the insurer or an affiliate
made by or on behalf of the commissioner; and
(3) any other document filed with any insurance
department by the insurer or an affiliate.
(d) The facts contained in any examination report of the
insurer or an affiliate made by or on behalf of the commissioner are
presumed to be true as of the date of the hearing if the examination
was made as of a date not more than 270 days before the date the
petition was filed. The presumption is rebuttable, and shifts the
burden of production and persuasion to the insurer.
(e) Discovery is limited to grounds alleged in the petition
and shall be concluded on an expedited basis.
Sec. 21A.055. DECISION AND APPEALS. (a) The receivership
court shall enter judgment on the petition to commence formal
delinquency proceedings not later than the 15th day after the date
of conclusion of the evidence.
(b) The judgment is final when entered. Any appeal must be
prosecuted on an expedited basis and must be taken not later than
the fifth day after the date of entry of the judgment. A request for
reconsideration, review, or appeal, or posting of a bond does not
dissolve or stay the judgment.
Sec. 21A.056. CONFIDENTIALITY. (a) The commissioner,
rehabilitator, or liquidator may share documents, materials, or
other information in the possession, custody, or control of the
department without regard to the confidentiality of those
documents, materials, or information, pertaining to an insurer that
is the subject of a proceeding under this chapter with other state,
federal, and international regulatory agencies, with the National
Association of Insurance Commissioners and its affiliates and
subsidiaries, with state, federal, and international law
enforcement authorities, with an auditor appointed by the
receivership court in accordance with Section 21A.355, and,
pursuant to Section 21A.105, with representatives of guaranty
associations that may have statutory obligations as a result of the
insolvency of the insurer, provided that the recipient agrees to
maintain the confidentiality, if any, of the documents, material,
or other information. Nothing in this section limits the power of
the commissioner to disclose information under other applicable
law.
(b) A domiciliary receiver shall permit a commissioner of
another state or a guaranty association to obtain a listing of
policyholders and certificate holders residing in the requestor's
state, including current addresses and summary policy information,
provided that the commissioner of the other state or the guaranty
association agrees to maintain the confidentiality of the records
and agrees that the records will be used only for regulatory or
guaranty association purposes. Access to records may be limited to
normal business hours. In the event that the domiciliary receiver
believes that certain information is sensitive and that disclosure
may cause a diminution in recovery, the receiver may apply for a
protective order imposing additional restrictions on access.
(c) The Texas Workers' Compensation Commission shall report
to the department any information that a workers' compensation
insurer has committed acts that indicate that the insurer is
impaired or insolvent. A report made under this subsection is
confidential under this section.
(d) The confidentiality obligations imposed by this section
end upon the entry of an order of liquidation against the insurer,
unless otherwise agreed to by the parties or pursuant to an order of
the receivership court.
(e) A waiver of any applicable privilege or claim of
confidentiality does not occur as a result of any disclosure, or any
sharing of documents, materials, or other information, made
pursuant to this section.
Sec. 21A.057. GROUNDS FOR CONSERVATION, REHABILITATION, OR
LIQUIDATION. The commissioner may file with a court in this state a
petition with respect to an insurer domiciled in this state or an
unauthorized insurer for an order of rehabilitation or liquidation
on any one or more of the following grounds:
(1) the insurer is impaired;
(2) the insurer is insolvent;
(3) the insurer is about to become insolvent, with
"about to become insolvent" being defined as reasonably anticipated
that the insurer will not have liquid assets to meet its next 90
days' current obligations;
(4) the insurer has neglected or refused to comply
with an order of the commissioner to make good within the time
prescribed by law any deficiency, whenever its capital and minimum
required surplus, if a stock company, or its surplus, if a company
other than stock, has become impaired;
(5) the insurer, its parent company, its subsidiaries,
or its affiliates have converted, wasted, or concealed property of
the insurer or have otherwise improperly disposed of, dissipated,
used, released, transferred, sold, assigned, hypothecated, or
removed the property of the insurer;
(6) the insurer is in a condition such that it could
not meet the requirements for organization and authorization as
required by law, except as to the amount of the original surplus
required of a stock company under Title 6, and except as to the
amount of the surplus required of a company other than a stock
company in excess of the minimum surplus required to be maintained;
(7) the insurer, its parent company, its subsidiaries,
or its affiliates have concealed, removed, altered, destroyed, or
failed to establish and maintain books, records, documents,
accounts, vouchers, and other pertinent material adequate for the
determination of the financial condition of the insurer by
examination under Article 1.15, 1.15A, or 1.16 or has failed to
properly administer claims or maintain claims records that are
adequate for the determination of its outstanding claims liability;
(8) at any time after the issuance of an order under
Article 1.32 or 21.28-A, or at the time of instituting any
proceeding under this chapter, it appears to the commissioner that,
upon good cause shown, it would not be in the best interest of the
policyholders, creditors, or the public to proceed with the conduct
of the business of the insurer;
(9) the insurer is in a condition such that the further
transaction of business would be hazardous financially, according
to Article 1.32 or otherwise, to its policyholders, creditors, or
the public;
(10) there is reasonable cause to believe that there
has been embezzlement from the insurer, wrongful sequestration or
diversion of the insurer's property, forgery or fraud affecting the
insurer, or other illegal conduct in, by, or with respect to the
insurer that, if established, would endanger assets in an amount
threatening the solvency of the insurer;
(11) control of the insurer is in a person who is:
(A) dishonest or untrustworthy; or
(B) so lacking in insurance company managerial
experience or capability as to be hazardous to policyholders,
creditors, or the public;
(12) any person who in fact has executive authority in
the insurer, whether an officer, manager, general agent, director,
trustee, employee, shareholder, or other person, has refused to be
examined under oath by the commissioner concerning the insurer's
affairs, whether in this state or elsewhere or if examined under
oath, refuses to divulge pertinent information reasonably known to
the person; and after reasonable notice of the fact, the insurer has
failed promptly and effectively to terminate the employment and
status of the person and all the person's influence on management;
(13) after demand by the commissioner under Article
1.15, 1.15A, or 1.16 or under this chapter, the insurer has failed
promptly to make available for examination any of its own property,
books, accounts, documents, or other records, or those of any
subsidiary or related company within the control of the insurer or
of any person having executive authority in the insurer, so far as
they pertain to the insurer;
(14) without first obtaining the written consent of
the commissioner, the insurer has transferred, or attempted to
transfer, in a manner contrary to Chapter 823 or any law relating to
bulk reinsurance, substantially its entire property or business, or
has entered into any transaction the effect of which is to merge,
consolidate, or reinsure substantially its entire property or
business in or with the property or business of any other person;
(15) the insurer or its property has been or is the
subject of an application for the appointment of a receiver,
trustee, custodian, conservator, sequestrator, or similar
fiduciary of the insurer or its property otherwise than as
authorized under the insurance laws of this state;
(16) within the previous five years, the insurer has
wilfully and continuously violated its charter, articles of
incorporation or bylaws, any insurance law of this state, or any
valid order of the commissioner;
(17) the insurer has failed to pay within 60 days after
the due date any obligation to any state or political subdivision of
a state or any judgment entered in any state, if the court in which
the judgment was entered had jurisdiction over the subject matter,
except that nonpayment is not a ground until 60 days after any good
faith effort by the insurer to contest the obligation has been
terminated, whether it is before the commissioner or in the courts;
(18) the insurer has systematically engaged in the
practice of reaching settlements with and obtaining releases from
claimants, and then unreasonably delayed payment, failed to pay the
agreed-upon settlements, or systematically attempted to compromise
with claimants or other creditors on the ground that it is
financially unable to pay its claims or obligations in full;
(19) the insurer has failed to file its annual report
or other financial report required by statute within the time
allowed by law;
(20) the board of directors or the holders of a
majority of the shares entitled to vote, or a majority of those
individuals entitled to the control of those entities specified by
Section 21A.003, request or consent to rehabilitation or
liquidation under this chapter;
(21) the insurer does not comply with its domiciliary
state's requirements for issuance to it of a certificate of
authority, or its certificate of authority has been revoked by its
state of domicile; or
(22) when authorized by department rules.
Sec. 21A.058. ENTRY OF ORDER. If the commissioner
establishes any of the grounds provided in Section 21A.057, the
receivership court shall grant the petition and issue the order of
rehabilitation or liquidation requested in the petition.
Sec. 21A.059. EFFECT OF PETITION OR ORDER ON CONTRACT OR
LEASE. Neither the filing of a petition under this chapter nor the
entry of any order of seizure, rehabilitation, or liquidation
constitutes a breach or an anticipatory breach of any contract or
lease of the insurer.
[Sections 21A.060-21A.100 reserved for expansion]
SUBCHAPTER C. REHABILITATION
Sec. 21A.101. REHABILITATION ORDERS. (a) An order to
rehabilitate the business of an insurer must appoint the
commissioner and the commissioner's successors in office as the
rehabilitator and must direct the rehabilitator to take possession
of the property of the insurer wherever located and to administer it
subject to this chapter. The rehabilitator is entitled to request
the receivership court to appoint a single judge to supervise the
rehabilitation and hear any cases or controversies arising out of
or related to the rehabilitation. Rehabilitation proceedings are
exempt from any dormancy or similar program maintained by the
receivership court for the early closure of civil actions. The
filing or recording of the order with the clerk of the court or
recorder of deeds of the county in which the principal business of
the company is conducted, or, in the case of real estate, the county
in which its principal office or place of business is located,
imparts the same notice as a deed, bill of sale, or other evidence
of title filed or recorded with the recorder of deeds would impart.
The order to rehabilitate the insurer must, by operation of law,
vest title to all property of the insurer in the rehabilitator.
(b) Any order issued under this section must require
accountings to the receivership court by the rehabilitator.
Accountings must be at the intervals specified by the receivership
court in its order, but not less frequently than semi-annually.
Each accounting must include a report concerning the
rehabilitator's opinion as to the likelihood that a plan under
Section 21A.103 will be prepared by the rehabilitator and the
timetable for doing so.
(c) In recognition of the need for a prompt and final
resolution for all persons affected by a plan of rehabilitation,
any appeal from an order of rehabilitation or an order approving a
plan of rehabilitation must be heard on an expedited basis. A stay
of an order of rehabilitation or an order approving a plan of
rehabilitation may not be granted unless the appellant demonstrates
that extraordinary circumstances warrant delaying the recovery
under the plan of rehabilitation of all other persons, including
policyholders. If the plan provides an appropriate mechanism for
adjustment in the event of any adverse ruling from an appeal, a stay
may not be granted.
Sec. 21A.102. POWERS AND DUTIES OF REHABILITATOR. (a) The
rehabilitator may appoint one or more special deputies. A special
deputy serves at the pleasure of the rehabilitator and has all the
powers and responsibilities of the rehabilitator granted under this
section, unless specifically limited by the rehabilitator. The
rehabilitator may employ or contract with legal counsel, actuaries,
accountants, appraisers, consultants, clerks, assistants, and
other personnel as may be deemed necessary. Any special deputy or
any other person with whom the rehabilitator contracts under this
subsection may act on behalf of the commissioner only in the
commissioner's capacity as rehabilitator. Any person with whom the
rehabilitator contracts under this subsection is not considered an
agent of the state, and any contract entered into under this
subsection does not constitute a contract with the state. The
provisions of any law governing the procurement of goods and
services by the state does not apply to any contract entered into by
the commissioner as rehabilitator. The compensation of any special
deputies, employees, and contractors and all expenses of taking
possession of the insurer and of conducting the rehabilitation
shall be fixed by the rehabilitator, with the approval of the
receivership court in accordance with Section 21A.015, and shall be
paid out of the property of the insurer. The persons appointed
under this subsection serve at the pleasure of the rehabilitator.
If the rehabilitator deems it necessary to the proper performance
of the rehabilitator's duties under this chapter, the rehabilitator
may appoint an advisory committee of policyholders, claimants, or
other creditors, including guaranty associations. The advisory
committee serves at the pleasure of the rehabilitator and without
compensation or reimbursement for expenses. The rehabilitator or
the receivership court in rehabilitation proceedings conducted
under this chapter may not appoint another committee of any nature.
(b) The rehabilitator may take action as the rehabilitator
deems necessary or appropriate to reform and revitalize the
insurer, including canceling policies, insurance and reinsurance
contracts other than life or health insurance or annuities, or
surety bonds or surety undertakings or transferring policies,
insurance and reinsurance contracts, or surety bonds or surety
undertakings to a solvent assuming insurer, with court approval.
The rehabilitator has all the powers of the directors, officers,
and managers of the insurer, whose authority is suspended, except
as redelegated by the rehabilitator. The rehabilitator has full
power to direct and manage, hire and discharge employees, and deal
with the property and business of the insurer.
(c) If it appears to the rehabilitator that there has been
criminal or tortious conduct or breach of any contractual or
fiduciary obligation detrimental to the insurer by any officer,
manager, agent, broker, employee, affiliate or other person, the
rehabilitator may pursue all appropriate legal remedies on behalf
of the insurer.
(d) The rehabilitator may assert all defenses available to
the insurer as against third persons, including statutes of
limitations, statutes of frauds, and the defense of usury. A waiver
of any defense by the insurer after a petition under this chapter
has been filed does not bind the rehabilitator.
(e) The enumeration, in this section, of the powers and
authority of the rehabilitator may not be construed as a limitation
upon the rehabilitator, nor shall it exclude in any manner the right
to do other acts not specifically enumerated or otherwise provided
for, as may be necessary or appropriate for the accomplishment of or
in aid of the purpose of rehabilitation.
Sec. 21A.103. REHABILITATION PLANS. (a) The rehabilitator
shall prepare and file a plan to effect rehabilitation with the
receivership court not later than the first anniversary of the
entry of the rehabilitation order or another further time as the
receivership court may allow. Upon application of the
rehabilitator for approval of the plan, and after the notice and
hearings the receivership court may prescribe, the receivership
court may approve or disapprove the proposed plan or may modify it
and approve it as modified. Any plan approved under this section
must be, in the judgment of the receivership court, fair and
equitable to all parties concerned. If the plan is approved, the
rehabilitator shall carry out the plan. A plan for a life insurer
may propose imposition of a moratorium upon loan and cash surrender
rights under policies, for a period not to exceed one year from the
entry of the rehabilitation order approving the rehabilitation
plan, unless the receivership court, for good cause shown, extends
the moratorium.
(b) Once a plan has been filed, any party in interest may
object to the plan.
(c) A plan must:
(1) except as provided by Subsection (e), provide no
less favorable treatment of a claim or class of claims than would
occur in liquidation, unless the holder of a particular claim or
interest agrees to a less favorable treatment of that particular
claim or interest;
(2) provide adequate means for the plan's
implementation;
(3) contain information concerning the financial
condition of the insurer and the operation and effect of the plan,
as far as is reasonably practicable in light of the nature and
history of the insurer, the condition of the insurer's books and
records, and the nature of the plan; and
(4) provide for the disposition of the books, records,
documents, and other information relevant to the duties and
obligations covered by the plan.
(d) A plan may include any other provision not inconsistent
with the provisions of this chapter, including:
(1) payment of distributions;
(2) assumption or reinsurance of all or a portion of
the insurer's remaining liabilities by, and transfer of assets and
related books and records to, an authorized insurer or other
entity;
(3) to the extent appropriate, application of
insurance company regulatory market conduct standards to any entity
administering claims on behalf of the receiver or assuming direct
liabilities of the insurer;
(4) contracting with a state guaranty association or
any other qualified entity to perform the administration of claims;
(5) annual independent financial and performance
audits of any entity administering claims on behalf of the receiver
that is not otherwise subject to examination pursuant to state
insurance law; and
(6) termination of the insurer's liabilities other
than those under policies of insurance as of a date certain.
(e) A plan may designate and separately treat one or more
separate subclasses of claims consisting only of claims within the
subclasses that are for or reduced to de minimis amounts. For
purposes of this subsection, a "de minimis amount" means any amount
equal to or less than a maximum de minimis amount approved by the
receivership court as being reasonable and necessary for
administrative convenience.
Sec. 21A.104. TERMINATION OF REHABILITATION. (a) When the
rehabilitator believes further attempts to rehabilitate an insurer
would substantially increase the risk of loss to creditors,
policyholders, or the public or would be futile, the rehabilitator
may move for an order of liquidation. In accordance with Section
21A.105, the rehabilitator or the rehabilitator's designated
representative shall coordinate with the guaranty associations
that may become liable as a result of the liquidation and any
national association of guaranty associations to plan for
transition to liquidation.
(b) Because the protection of the interests of insureds,
claimants, and the public requires the timely performance of all
insurance policy obligations, if the payment of policy obligations
is suspended in substantial part for a period of six months at any
time after the appointment of the rehabilitator and the
rehabilitator has not filed an application for approval of a plan
under Section 21A.103, the rehabilitator shall petition the
receivership court for an order of liquidation.
(c) The rehabilitator or the directors of the insurer may at
any time petition the receivership court for, or the receivership
court on its own motion may enter, an order terminating
rehabilitation of an insurer. Subject to the provisions of Section
21A.351, if the receivership court finds that rehabilitation has
been accomplished and that grounds for rehabilitation under Section
21A.057 no longer exist, it shall order that the insurer be restored
to title and possession of its property and the control of the
business.
Sec. 21A.105. COORDINATION WITH GUARANTY ASSOCIATIONS. (a)
The receiver shall notify any potentially obligated guaranty
association or the guaranty association's representative
concerning the entry of a rehabilitation order and shall update the
guaranty association or its representative regarding significant
developments that impact efforts to rehabilitate the insurer. On a
determination by the rehabilitator that rehabilitation efforts may
not be successful, the rehabilitator shall participate in
cooperative efforts with the potentially obligated guaranty
associations. To facilitate an orderly transition to liquidation,
the rehabilitator shall make available to the guaranty associations
the information necessary to discharge their responsibilities upon
becoming statutorily obligated. To the extent that information is
available, or as it becomes available, the rehabilitator shall
provide appropriate information to guaranty associations in the
states in which the insurer transacted business.
(b) For the purposes of Subsection (a), "appropriate
information" may include the following for lines of business
written by the insurer, whether covered or not covered by guaranty
associations:
(1) a general description of the different types of
business written or assumed by the insurer;
(2) claim counts and policy counts by state and by line
of business;
(3) claim and policy reserves;
(4) account values and cash surrender values;
(5) policy loans;
(6) interest crediting history;
(7) premiums and mode of payment;
(8) unpaid claims and amounts;
(9) sample policies and endorsements;
(10) a listing of different locations of claim files;
(11) if third-party administrators were used, copies
of executed contracts and a description of the contractual
arrangements; and
(12) information concerning claims in litigation or
dispute, including a listing of claims with assigned defense
counsel for those claims going to trial in the near future after a
possible liquidation date.
(c) For the purposes of Subsection (a), "appropriate
information" also includes information concerning states in which
the insurer is or was licensed and periods for which the insurer is
or was licensed and other information reasonably requested by a
guaranty association necessary for the guaranty association to
fulfill its statutory duties.
(d) In the case of a property and casualty insurer, the
rehabilitator, in cooperation with the guaranty associations,
shall make all reasonable efforts to prepare the insurer's
electronic policy and claims data so that, upon the entry of an
order of liquidation, the data will be ready for transmission using
the Uniform Data Standards as promulgated by the National
Association of Insurance Commissioners.
(e) The list of what appropriate information includes under
Subsections (b) and (c) is not necessarily an exclusive list. Other
information may be necessary to ensure that an orderly transition
to liquidation occurs, and that information may be appropriately
provided by the receiver.
[Sections 21A.106-21A.150 reserved for expansion]
SUBCHAPTER D. LIQUIDATION
Sec. 21A.151. LIQUIDATION ORDERS. (a) An order to
liquidate the business of an insurer shall appoint the commissioner
and any successor in office as the liquidator and shall direct the
liquidator to take possession of the property of the insurer and to
administer it subject to this chapter. The liquidator is entitled
to request the receivership court to appoint a single judge to
supervise the liquidation and to hear any cases or controversies
arising out of or related to the liquidation. Liquidation
proceedings are exempt from any dormancy or similar program
maintained by the receivership court for the early closure of civil
actions. As of the entry of the final order of liquidation, the
liquidator is vested by operation of law with the title to all of
the property, contracts, rights of action, and books and records of
the insurer ordered liquidated, wherever located. The filing or
recording of the order with the clerk of the court and the recorder
of deeds of the county in which the insurer's principal office or
place of business is located or, in the case of real estate, the
county where the property is located, imparts the same notice as a
deed, bill of sale, or other evidence of title filed or recorded
with that recorder of deeds would impart.
(b) Upon issuance of the order of liquidation, the rights
and liabilities of the insurer and of its creditors, policyholders,
shareholders, members, and all other persons interested in its
estate become fixed as of the date of entry of the order of
liquidation, except as provided by Sections 21A.152 and 21A.255,
unless otherwise fixed by the court.
(c) An order to liquidate the business of an alien insurer
in this state must be in the same terms and has the same legal effect
as an order to liquidate a domestic insurer.
(d) At the time of petitioning for an order of liquidation,
or at any time after petitioning, the commissioner may petition the
receivership court for a judicial declaration of insolvency. After
providing the notice and hearing as it deems proper, the
receivership court may make the declaration of insolvency.
(e) In the event an order of liquidation is set aside on
appeal, the company may not be released from delinquency
proceedings except in accordance with Section 21A.351.
Sec. 21A.152. CONTINUANCE OF COVERAGE. (a)
Notwithstanding any policy or contract language or any other
statute, all reinsurance contracts by which the insurer has assumed
the insurance obligations of another insurer are canceled upon
entry of an order of liquidation.
(b) Notwithstanding any policy or contract language or any
other statute, all policies, insurance contracts other than
reinsurance by which the insurer has ceded insurance obligations to
another person, and surety bonds or surety undertakings, other than
life or health insurance or annuities, in effect at the time of
issuance of an order of liquidation, unless further extended by the
receiver with the approval of the receivership court, continue in
force only until the earlier of:
(1) the 30th day after the date of entry of the
liquidation order;
(2) the date of expiration of the policy coverage;
(3) the date the insured has replaced the insurance
coverage with equivalent insurance with another insurer or
otherwise terminated the policy;
(4) the date the liquidator has effected a transfer of
the policy obligation pursuant to Section 21A.154(h); or
(5) the date proposed by the liquidator and approved
by the receivership court to cancel coverage.
(c) An order of liquidation under Section 21A.151 must
terminate coverages at the time specified by Subsections (a) and
(b) for purposes of any other statute.
(d) Policies of life or health insurance or annuities
covered by a guaranty association and any portion of policies of
life or health insurance or annuities covered by a guaranty
association continue in force for the period and under the terms
provided for by any applicable guaranty association law. Policies
of life or health insurance or annuities not covered by a guaranty
association and any portion of policies of life or health insurance
or annuities not covered by a guaranty association terminate under
Subsection (b), except to the extent the liquidator proposes and
the receivership court approves the use of property of the estate,
consistent with Section 21A.301, for the purpose of continuing the
contracts or coverage by transferring them to an assuming
reinsurer.
(e) The cancellation of any bond or surety undertaking does
not release any cosurety or guarantor.
(f) The obligations of the insolvent insurer's reinsurers
are not released or discharged by a cancellation under this
section.
Sec. 21A.153. SALE OR DISSOLUTION OF INSURER'S CORPORATE
ENTITY. (a) Notwithstanding the entry of a liquidation order, the
liquidator may apply for an order to sell or dissolve the corporate
entity or charter of a domestic insurer or the United States branch
of an alien insurer domiciled in this state at any time after an
order of liquidation of the insurer has been granted, consistent
with the provisions of this section.
(b) Upon an application to sell the corporate entity or
charter, with notice as prescribed in this chapter, the
receivership court may enter an order:
(1) separating the corporate entity or charter,
together with any of its licenses to do business and the assets the
liquidator deems appropriate to the transaction, from the remaining
estate in liquidation and all of the remaining estate's assets and
the claims or interests of all claimants, creditors, policyholders,
and stockholders;
(2) canceling all outstanding stock and other
securities of and other equity interests in the corporate entity or
charter, provided that the cancellation may not affect any claim
against the estate by a holder of an equity interest;
(3) authorizing the issuance and sale of new stock or
other securities for the purpose of transferring to one or more
buyers control and ownership of the corporate entity or charter;
and
(4) authorizing the sale of the corporate entity or
charter, together with any of its authorizations or licenses to do
business and the general assets of the estate the liquidator deems
to be appropriate to the transaction, free and clear from the claims
or interest of all claimants, creditors, policyholders, and
stockholders.
(c) The sale of the corporate entity or charter may be made
in the manner and on the terms and conditions applied for by the
liquidator and ordered by the receivership court. Any sale is
subject to the domiciliary state's laws regarding acquisition of an
insurer, Chapter 823, and any other law regarding the transfer of
control of insurers. The proceeds from the sale of the corporate
entity or charter become a part of the property of the estate in
liquidation. The separate corporate entity or charter, together
with any of its authorizations or licenses to do business and such
assets as the liquidator deems appropriate to the transaction, are,
following the sale of the corporate entity or charter, free and
clear from the claims or interest of all claimants, creditors,
policyholders, and stockholders of the corporation in liquidation.
(d) This section shall be liberally construed to accomplish
its purposes to:
(1) provide an expeditious and effective procedure to
realize the maximum proceeds possible from the sale of a corporate
entity or charter separated from an estate in liquidation; and
(2) ensure that the purchasers receive clear and
marketable titles.
(e) If permission to sell the corporate entity or charter is
not granted prior to discharge of the liquidator, in accordance
with this section or otherwise with receivership court approval:
(1) the receivership court may order dissolution of
the corporate entity or charter;
(2) dissolution shall be deemed complete by operation
of law upon the discharge of the liquidator if the insurer is
insolvent; or
(3) dissolution may be ordered by the receivership
court upon the discharge of the liquidator if the insurer is under a
liquidation order for some other reason.
Sec. 21A.154. POWERS OF LIQUIDATOR. (a) The liquidator may
appoint a special deputy or deputies to act for the liquidator under
this chapter and employ or contract with legal counsel, actuaries,
accountants, appraisers, consultants, clerks, assistants, and
other personnel the liquidator may deem necessary to assist in the
liquidation. A special deputy has all powers of the liquidator
granted by this section, unless specifically limited by the
liquidator, and serves at the pleasure of the liquidator. A special
deputy or any other person with whom the liquidator contracts under
this subsection may act on behalf of the commissioner only in the
commissioner's capacity as liquidator. Any person with whom the
liquidator contracts is not considered to be an agent of the state
and any contract under this subsection is not a contract with the
state. The provisions of any law governing the procurement of goods
and services by the state do not apply to any contract entered into
by the commissioner as liquidator. This subsection does not waive
any immunity granted by Section 21A.014 or create any cause of
action against the state.
(b) The liquidator may determine the reasonable
compensation for any special deputies, employees, or contractors
retained by the liquidator as provided in Subsection (a) and pay
compensation in accordance with Section 21A.015.
(c) The liquidator may appoint, with the approval of the
receivership court, an advisory committee of policyholders,
claimants, or other creditors, including guaranty associations, if
the committee be deemed necessary. The advisory committee serves
at the pleasure of the liquidator, and the decision to appoint an
advisory committee is at the sole discretion of the liquidator. The
advisory committee serves without compensation or reimbursement
for expenses. The liquidator or the receivership court in
liquidation proceedings conducted under this chapter may not
appoint another committee of any nature.
(d) The liquidator may hold hearings, subpoena witnesses to
compel their attendance, administer oaths, examine any person under
oath, compel any persons to subscribe to their testimony after it
has been correctly reduced to writing, and, in connection with a
power under this subsection, require the production of any books,
papers, records, or other documents that the liquidator deems
relevant to the inquiry.
(e) The liquidator may audit the books and records of all
agents of the insurer to the extent that those books and records
relate to the business activities of the insurer.
(f) The liquidator may collect all debts and moneys due and
claims belonging to the insurer, wherever located, and may:
(1) institute action in other jurisdictions, in order
to forestall garnishment and attachment proceedings against the
debts;
(2) do other acts as necessary or expedient to
collect, conserve, or protect the insurer's property, including the
power to sell, compromise, or assign debts for purposes of
collection upon such terms and conditions as the liquidator deems
consistent with this chapter; and
(3) pursue any creditor's remedies available to
enforce the insurer's claims.
(g) The liquidator may conduct public and private sales of
the property of the insurer.
(h) The liquidator may use property of the estate of an
insurer under a liquidation order to transfer to a solvent assuming
insurer policy obligations or the insurer's obligations under
surety bonds and surety undertakings as well as collateral held by
the insurer with respect to the reimbursement obligations of the
principals under those surety bonds and surety undertakings, if the
transfer can be arranged without prejudice to applicable priorities
under Section 21A.301. If all insureds, principals, third-party
claimants, and obligees under the policies, surety bonds, and
surety undertakings consent or if the receivership court so orders,
the estate has no further liability under the transferred policies,
surety bonds, or surety undertakings after the transfer is made.
(i) The liquidator may, subject to Subsection (x), acquire,
hypothecate, encumber, lease, improve, sell, transfer, abandon, or
otherwise dispose of or deal with any property of the estate at its
market value or upon terms and conditions that are fair and
reasonable. The liquidator also has the power to execute,
acknowledge, and deliver any and all deeds, assignments, releases,
and other instruments necessary or proper to effectuate any sale of
property or other transaction in connection with the liquidation.
(j) The liquidator may borrow money on the security of the
property of the estate or without security and execute and deliver
all documents necessary to that transaction for the purpose of
facilitating the liquidation. Any funds borrowed under this
subsection may be repaid as an administrative expense and have
priority over any other claims in Class 1 under the priority of
distribution.
(k) The liquidator may enter into contracts as necessary to
carry out the order to liquidate and, subject to the provisions of
Section 21A.013, may assume or reject any executory contract or
unexpired lease to which the insurer is a party.
(l) The liquidator may continue to prosecute and institute
in the name of the insurer or in the liquidator's own name any and
all suits and other legal proceedings, in this state or elsewhere,
and abandon the prosecution of claims the liquidator deems
unprofitable to pursue further. If the insurer is dissolved under
Section 21A.153, the liquidator has the power to apply to any court
in this state or elsewhere for leave to substitute the liquidator
for the insurer as a party.
(m) The liquidator may prosecute any action that may exist
on behalf of the creditors, members, policyholders, shareholders of
the insurer, or the public against any person, except to the extent
that a claim is personal to a specific creditor, member,
policyholder, or shareholder and recovery on such claim would not
inure to the benefit of the estate. This subsection does not
infringe or impair any of the rights provided to a guaranty
association pursuant to its enabling statute or otherwise.
(n) The liquidator may take possession of the records and
property of the insurer as may be convenient for the purposes of
efficient and orderly execution of the liquidation. Guaranty
associations must be allowed reasonable access to the records of
the insurer as is necessary for the guaranty associations to carry
out their statutory obligations.
(o) The liquidator may deposit in one or more banks in this
state the amounts that are required for meeting current
administration expenses and dividend distributions.
(p) The liquidator may invest all amounts not currently
needed, unless the receivership court orders otherwise.
(q) The liquidator may file any necessary documents for
record in the office of any recorder of deeds or record office in
this state or elsewhere where property of the insurer is located.
(r) The liquidator may assert all defenses available to the
insurer as against third persons, including statutes of limitation,
statutes of frauds, and the defense of usury. A waiver of any
defense by the insurer after a petition is filed under this chapter
does not bind the liquidator. When a guaranty association has an
obligation to defend any suit, the liquidator shall defer to the
association's obligation.
(s) The liquidator may exercise and enforce all the rights,
remedies, and powers of any creditor, shareholder, policyholder, or
member, including any power to avoid any transfer or lien that may
be avoidable under this chapter or otherwise.
(t) The liquidator may intervene in any proceeding wherever
instituted that might lead to the appointment of a receiver or
trustee and act as the receiver or trustee whenever the appointment
is offered.
(u) The liquidator may enter into agreements with any
receivers or commissioners of any other states.
(v) The liquidator may exercise all powers held by receivers
on August 31, 2005, or conferred on receivers after that date by the
laws of this state not inconsistent with this chapter.
(w) The liquidator is vested with all the rights of the
entity or entities in receivership.
(x) The enumeration, in this section, of the powers and
authority of the liquidator may not be construed as a limitation
upon the liquidator, nor may it exclude in any manner the right to
do other acts not specifically enumerated or otherwise provided
for, to the extent necessary or appropriate for the accomplishment
of or in aid of the purpose of liquidation.
(y) The liquidator may hypothecate, encumber, lease, sell,
transfer, abandon, or otherwise dispose of or deal with any
property of the insurer, settle or resolve any claim brought by the
liquidator on behalf of the insurer, or commute or settle any claim
of reinsurance under any contract of reinsurance, as follows:
(1) if the property or claim has a market or settlement
value that does not exceed the lesser of $1 million or 10 percent of
the general assets of the estate as shown on the receivership's
financial statements, the liquidator may take action at the
liquidator's discretion, provided that the receivership court may,
upon petition of the liquidator, increase the threshold upon a
showing that compliance with this requirement is burdensome to the
liquidator in administering the estate and is unnecessary to
protect the material interests of creditors;
(2) in all instances other than those described in
Subdivision (1), the liquidator may take the action only after
obtaining approval of the receivership court as provided by Section
21A.007;
(3) the liquidator may, at the liquidator's
discretion, request the receivership court to approve a proposed
action as provided by Section 21A.007 if the value of the property
or claim appears to be less than the threshold provided by
Subdivision (1) but cannot be ascertained with certainty, or for
any other reason as determined by the liquidator; and
(4) after obtaining approval of the receivership court
as provided in Section 21A.007, the liquidator may, subject to
Subsection (z), transfer rights to payment under ceding reinsurance
agreements covering policies to a third-party transferee.
(z) The transferee of a right to payment under Subsection
(y)(4) has the rights to collect and enforce collection of the
reinsurance for the amount payable to the ceding insurer or to its
receiver, without diminution because of the insolvency or because
the receiver has failed to pay all or a portion of the claim, based
on the amounts paid or allowed pursuant to Section 21A.211. The
transfer of the rights does not give rise to any defense regarding
the reinsurer's obligations under the reinsurance agreement
regardless of whether an agreement or other applicable law
prohibits the transfer of rights under the reinsurance agreement.
Except as provided in this subsection, any transfer of rights
pursuant to Subsection (y)(4) does not impair any rights or
defenses of the reinsurer that existed prior to the transfer or that
would have existed in the absence of the transfer. Except as
otherwise provided in this subsection, any transfer of rights
pursuant to Subsection (y)(4) does not relieve the transferee or
the liquidator from obligations owed to the reinsurer pursuant to
the reinsurance or other agreement.
(aa) The liquidator is not obligated to defend any action
against the insurer or insured. Any insureds not defended by a
guaranty association may provide their own defense, and include the
cost of the defense as part of their claims, if the defense was an
obligation of the insurer. The right of the liquidator to contest
coverage on a particular claim is preserved without the necessity
for an express reservation of rights.
Sec. 21A.155. NOTICE TO CREDITORS AND OTHERS. (a) Unless
the receivership court otherwise directs, the liquidator shall give
or cause to be given notice of the liquidation order as soon as
possible:
(1) by first class mail or electronic communication as
permitted by the receivership court to:
(A) any guaranty association that is or may
become obligated as a result of the liquidation and any national
association of guaranty associations;
(B) all the insurer's agents, brokers, or
producers of record with current appointments or current licenses
to represent the insurer and all other agents, brokers, or
producers as the liquidator deems appropriate at their last known
address; and
(C) all persons or entities known or reasonably
expected to have claims against the insurer, at their last known
address as indicated by the records of the insurer, and all state
and federal agencies with an interest in the proceeding; and
(2) by publication in a newspaper of general
circulation in the county in which the insurer has its principal
place of business and in any other locations as the liquidator deems
appropriate.
(b) The notice of the entry of an order of liquidation must
contain or provide directions for obtaining the following
information:
(1) a statement that the insurer has been placed in
liquidation;
(2) a statement that certain acts are stayed under
Section 21A.008 and describe any additional injunctive relief
ordered by the receivership court;
(3) a statement whether, and to what extent, the
insurer's policies continue in effect;
(4) to the extent applicable, a statement that
coverage by state guaranty associations may be available for all or
part of policy benefits in accordance with applicable state
guaranty laws;
(5) a statement of the deadline for filing claims, if
established, and the requirements for filing a proof of claim
pursuant to Section 21A.251 on or before that date;
(6) a statement of the date, time, and location of any
initial status hearing scheduled at the time the notice is sent;
(7) a description of the process for obtaining notice
of matters before the receivership court; and
(8) any other information the liquidator or the
receivership court deems appropriate.
(c) If notice is given in accordance with this section, the
distribution of property of the insurer under this chapter is
conclusive with respect to all claimants, whether or not they
received notice.
(d) Notwithstanding the other provisions of this section,
the liquidator has no duty to locate any persons or entities if no
address is found in the records of the insurer or if mailings are
returned to the liquidator because of inability to deliver at the
address shown in the insurer's books and records. In these
circumstances the notice by publication as required by this chapter
or actual notice received is sufficient notice. Written
certification by the liquidator or other knowledgeable person
acting for the liquidator that the notices were deposited in the
United States mail, postage prepaid, or that the notices have been
electronically transmitted is prima facie evidence of mailing and
receipt. All claimants shall keep the liquidator informed of any
changes of address.
(e) Notwithstanding Subsection (a)(1)(C), upon application
of the liquidator, the receivership court may:
(1) find that notice by publication as required in
this section is sufficient notice to those persons holding an
occurrence policy that expired more than four years prior to the
entry of the order of liquidation and under which there are no
pending claims; or
(2) order other notice to persons described by
Subdivision (1) as it deems appropriate.
(f) The liquidator shall notify the Texas Workers'
Compensation Commission upon the entry of the liquidation order if
the insurer has issued workers' compensation coverage in effect in
this state. Upon request of the liquidator, the Texas Workers'
Compensation Commission shall submit a list of active cases pending
before the commission that relate to workers' compensation coverage
issued by the insurer.
Sec. 21A.156. DUTIES OF AGENTS. (a) Every person who
represented the insurer as an agent and receives notice in the form
prescribed in Section 21A.155 that the insurer is the subject of a
liquidation order, not later than the 30th day after the date of the
notice, shall provide to the liquidator, in addition to the
information the agent may be required to provide pursuant to
Section 21A.010, the information in the agent's records related to
any policy issued by the insurer through the agent and any policy
issued by the insurer through an agent under contract to the agent,
including the name and address of any subagent. For purposes of
this subsection, a policy is issued through an agent if the agent
has a property interest in the expiration of the policy or if the
agent has had in the agent's possession a copy of the declarations
of the policy at any time during the life of the policy, except
where the ownership of the expiration of the policy has been
transferred to another.
(b) Any agent failing to provide information to the
liquidator as required in Subsection (a) may be subject to payment
of an administrative penalty under Chapter 84 of not more than
$1,000. In addition, the agent's license may be suspended under
Chapter 4005.
[Sections 21A.157-21A.200 reserved for expansion]
SUBCHAPTER E. ASSET RECOVERY
Sec. 21A.201. TURNOVER OF ASSETS. (a) If the receiver
determines that funds or property in the possession of another
person are rightfully the property of the estate, the receiver
shall deliver to the person a written demand for immediate delivery
of the funds or property, referencing this section by number and the
court and docket number of the receivership action, and notifying
the person that any claim of right to the funds or property by the
person must be presented to the receivership court not later than
the 20th day after the date of the written demand. Any person who
holds funds or other property belonging to an entity subject to an
order of receivership under this chapter shall deliver the funds or
other property to the receiver on demand. Should the person allege
any right to retain the funds or other property, the person, not
later than the 20th day after the date of receipt of the demand that
the funds or property be delivered to the receiver, shall file with
the receivership court a pleading setting out that right. The
person shall serve a copy of the pleading on the receiver. The
pleading must inform the receivership court as to the nature of the
claim to the funds or property, the alleged value of the property or
amount of funds held, and what action, pending determination of the
dispute, has been taken by the person to preserve and protect the
property or to preserve any funds. The relinquishment of
possession of funds or property by any person who has received a
demand pursuant to this section does not constitute a waiver of a
right to make a claim in the receivership.
(b) If requested by the receiver, the receivership court
shall hold a hearing to determine where and under what conditions
the person shall hold the property or funds pending determination
of the dispute. The receivership court may impose conditions as it
may deem necessary or appropriate for the preservation of the
property or funds until the receivership court can determine the
validity of the person's claim to the property or funds. If any
property or funds are allowed to remain in the possession of the
person after demand made by the receiver, that person is strictly
liable to the estate for any waste, loss, or damage to or diminution
of value of the property or funds retained.
(c) If a person has filed a pleading alleging any right to
retain funds or property as provided by Subsection (a), the
receivership court shall hold a subsequent hearing to determine the
entitlement of the person to the funds or property claimed by the
receiver.
(d) If a person fails to deliver the funds or property or to
file the pleading described by Subsection (a) within the period
described by Subsection (a), the receivership court may, upon
petition of the receiver and upon a copy of the petition being
served by the receiver to that person, issue its summary order
directing the immediate delivery of the funds or property to the
receiver and finding that the person has waived all claims of right
to the funds or property.
Sec. 21A.202. RECOVERY FROM AFFILIATES. (a) The receiver
has a right to recover from any affiliate of the insurer any
property of the insurer transferred to or for the benefit of the
affiliate, or the property's value, if the transfer was made within
the two years preceding the initial petition for receivership.
(b) A transfer is not recoverable under Subsection (a) if
the affiliate shows that, when the transfer was made:
(1) the insurer was solvent;
(2) the transfer was lawful; and
(3) neither the insurer nor the affiliate knew or
reasonably should have known that the transfer, under
then-applicable statutory accounting standards, would:
(A) place the insurer:
(i) in violation of applicable capital or
surplus requirements;
(ii) below the applicable minimum
risk-based capital level; or
(iii) in violation of writing ratios under
Article 1.32 or analogous requirements under Section 843.406; or
(B) cause the insurer's filed financial
statements not to present fairly the capital and surplus of the
insurer.
Sec. 21A.203. UNAUTHORIZED POST-PETITION TRANSFERS. (a)
Except as provided by this section, the receiver may avoid any
transfer of an interest of the insurer in property or any obligation
incurred by the insurer that:
(1) was made or occurred after the petition for
receivership was filed; and
(2) is not authorized by the receiver and approved by
the receivership court or otherwise authorized in accordance with
this chapter.
(b) Except to the extent that a transfer or obligation
avoidable under Subsection (a) is otherwise voidable under this
chapter, a transferee or obligee of a transfer or obligation
avoided under Subsection (a) that takes for value and in good faith,
at the option of the receivership court, has a lien or may retain
any interest transferred or enforce any obligation incurred, as
applicable, to the extent that the transferee or obligee gave value
to the insurer in exchange for the transfer or obligation.
Sec. 21A.204. VOIDABLE PREFERENCES AND LIENS. (a) A
"preference" is a transfer of any interest in property of an insurer
that:
(1) is made to or for the benefit of a creditor and for
or on account of an antecedent debt and is made or suffered by the
insurer within two years preceding the filing of a successful
petition commencing delinquency proceedings; and
(2) enables the creditor to receive more than the
creditor would receive if the insurer were liquidated under this
chapter, the transfer had not been made, and the creditor was
entitled to receive payment of the debt to the extent provided by
this chapter.
(b) Any preference may be avoided by the receiver if:
(1) the insurer was insolvent at the time of the
transfer;
(2) the transfer was made within 120 days before the
date of filing of the petition commencing delinquency proceedings;
(3) the creditor receiving the transfer or to be
benefited by the transfer, or the creditor's agent acting with
reference to the transfer, had, at the time the transfer was made,
reasonable cause to believe that the insurer was insolvent or was
about to become insolvent; or
(4) the creditor receiving the transfer was:
(A) an officer or director of the insurer;
(B) an employee, attorney, or other person who
was in fact in a position to effect a level of control or influence
over the actions of the insurer comparable to that of an officer or
director, without regard to whether the person held that position;
or
(C) an affiliate.
(c) The receiver may not avoid a transfer under this
section:
(1) to the extent that the transfer was:
(A) intended by the insurer and the creditor to
or for whose benefit the transfer was made to be a contemporaneous
exchange for new value given to the insurer and in fact was a
substantially contemporaneous exchange; or
(B) made in the ordinary course of business or
financial affairs between the insurer and the transferee and made
according to ordinary business terms in payment of a debt incurred
by the insurer in the ordinary course of business or financial
affairs of the insurer and the transferee; or
(2) to or for the benefit of a creditor, to the extent
that, after the transfer, the creditor gave new value to or for the
benefit of the insurer that was:
(A) not secured by an otherwise unavoidable
security interest; and
(B) on account of which new value the insurer did
not make an otherwise unavoidable transfer to or for the benefit of
the creditor.
(d) For purposes of this section:
(1) a transfer of property other than real property is
deemed to be made or suffered at the time the transfer becomes so
far perfected that any subsequent lien obtainable by legal or
equitable proceedings on a simple contract could not become
superior to the rights of the transferee;
(2) a transfer of real property is deemed to be made or
suffered when the transfer is so far perfected that a subsequent
bona fide purchaser from the insurer could not obtain rights
superior to the rights of the transferee;
(3) a transfer that creates an equitable lien is not
deemed to be perfected if there are available means by which a legal
lien could be created; and
(4) a transfer not perfected prior to the filing of a
petition for receivership is deemed to be made immediately before
the filing commencing delinquency proceedings.
(e) The provisions of this section apply without regard to
whether there are or were creditors who might have obtained liens or
persons who might have become bona fide purchasers.
(f) Within the meaning of Subsection (d), "a lien obtainable
by legal or equitable proceedings on a simple contract" is a lien
arising in the ordinary course of proceedings upon the entry or
docketing of a judgment or decree, or upon attachment, garnishment,
execution, or similar process, whether before, upon, or after
judgment or decree and whether before or upon levy. The term does
not include liens that under applicable law are given a special
priority over other liens that are prior in time.
(g) Within the meaning of Subsection (d), a lien obtainable
by legal or equitable proceedings could become superior to the
rights of a transferee, or a purchaser could obtain rights superior
to the rights of a transferee if the consequences would follow only
from the lien or purchase itself, or from the lien or purchase
followed by any step wholly within the control of the respective
lienholder or purchaser, with or without the aid of ministerial
action by public officials. A lien could not, however, become
superior and a purchase could not create superior rights for the
purpose of Subsection (d) through any acts subsequent to the
obtaining of the lien or subsequent to the purchase that require the
agreement or concurrence of any third party or that require any
further judicial action or ruling.
(h) A transfer of property for or on account of a new and
contemporaneous consideration that is deemed under Subsection (d)
to be made or suffered after the transfer because of delay in
perfecting the transfer does not become a transfer for or on account
of an antecedent debt if any acts required by the applicable law to
be performed to perfect the transfer against liens or bona fide
purchasers' rights are performed within 21 days or any period
expressly allowed by the law, whichever is less. A transfer to
secure a future loan, if the loan is actually made, or a transfer
that becomes security for a future loan, has the same effect as a
transfer for or on account of a new and contemporaneous
consideration.
(i)(1) If any lien deemed voidable under Subsection (b) has
been dissolved by the furnishing of a bond or other obligation, the
surety on which has been indemnified directly or indirectly by the
transfer of or the creation of a lien upon any property of an
insurer before the filing of a petition commencing delinquency
proceedings under this chapter, the indemnifying transfer or lien
is also deemed voidable.
(2) The property affected by any lien deemed voidable
under Subsection (b) and Subdivision (1) is discharged from the
lien, and that property and any of the indemnifying property
transferred to or for the benefit of a surety passes to the
receiver, except that the receivership court may on due notice
order any lien deemed voidable under this section to be preserved
for the benefit of the estate and may direct that a conveyance be
executed as may be proper or adequate to evidence the title of the
receiver.
(3) Reasonable notice of any hearing in the proceeding
shall be given to all parties as required by law, including the
obligee of a releasing bond or other like obligation. If an order
is entered for the recovery of indemnifying property in kind or for
the avoidance of an indemnifying lien, the receivership court may
in the same proceeding ascertain the value of the property or lien.
If the value of the property or lien is less than the amount for
which the property is indemnified or than the amount of the lien,
the transferee or lienholder may elect to retain the property or
lien upon payment to the receiver of its value, as determined by the
receivership court, within a reasonable time determined by the
receivership court.
(4) The liability of the surety under a releasing bond
or other similar obligation shall be discharged to the extent of the
value of the indemnifying property recovered or the indemnifying
lien nullified and avoided by the receiver, or if the property is
retained under Subdivision (3) to the extent of the amount paid to
the receiver.
(j) This section may not be construed to prejudice any other
claim by the receiver against any person.
Sec. 21A.205. FRAUDULENT TRANSFERS AND OBLIGATIONS. (a)
The receiver may avoid any transfer of an interest of the insurer in
property, any reinsurance transaction, or any obligation incurred
by an insurer that was made or incurred on or within two years
before the date of the initial filing of a petition commencing
delinquency proceedings under this chapter, if the insurer
voluntarily or involuntarily:
(1) made the transfer or incurred the obligation with
actual intent to hinder, delay, or defraud any person to which it
was or became indebted on or after the date that the transfer was
made or the obligation was incurred; or
(2) received less than a reasonably equivalent value
in exchange for the transfer or obligation.
(b) Except to the extent that a transfer or obligation
voidable under this section is voidable under other provisions of
this chapter, a transferee or obligee that takes for value and in
good faith a voidable transfer or obligation has a lien on or may
retain any interest transferred or may enforce any obligation
incurred, as the case may be, to the extent that the transferee or
obligee gave value to the insurer in exchange for the transfer or
obligation.
(c) For purposes of this section, a transfer is made when
the transfer is so perfected that a subsequent bona fide purchaser
from the insurer cannot acquire an interest in the property
transferred that is superior to the interest in the property of the
transferee, but if the transfer is not so perfected before the
commencement of the delinquency proceeding, the transfer is deemed
to have been made immediately before the date of the initial filing
of the petition commencing delinquency proceedings.
(d) For purposes of this section, "value" means property or
satisfaction or securing of a present or antecedent debt of the
insurer.
Sec. 21A.206. RECEIVER AS LIEN CREDITOR. (a) The receiver
may avoid any transfer of or lien upon the property of, or
obligation incurred by, an insurer that the insurer or a
policyholder, creditor, member, or stockholder of the insurer may
have avoided without regard to any knowledge of the receiver, the
commissioner, the insurer, or any policyholder, creditor, member,
or stockholder of the insurer regardless of whether such a
policyholder, creditor, member, or stockholder exists.
(b) The receiver is deemed a creditor without knowledge for
purposes of pursuing claims under the Uniform Fraudulent Transfer
Act, the Uniform Fraudulent Conveyance Act, or similar provisions
of state or federal law.
Sec. 21A.207. LIABILITY OF TRANSFEREE. (a) Except as
otherwise provided in this section, to the extent that the receiver
obtains an order under Section 21A.201 or avoids a transfer under
Sections 21A.202, 21A.203, 21A.204, 21A.205, or 21A.206, the
receiver may recover the property transferred, or the value of the
property, from:
(1) the initial transferee of the transfer or the
entity for whose benefit the transfer was made; or
(2) any immediate or mediate transferee of the initial
transferee.
(b) The receiver may not recover under Subsection (a)(2)
from:
(1) a transferee that takes for value, including
satisfaction or securing of a present or antecedent debt, in good
faith, and without knowledge of the voidability of the transfer
avoided; or
(2) any immediate or mediate good faith transferee of
the transferee.
(c) Any transfer avoided in accordance with this chapter is
preserved for the benefit of the receivership estate, but only with
respect to property of the insurer.
(d) In addition to the remedies specifically provided under
Sections 21A.201-21A.206 and Subsection (a), if the receiver is
successful in establishing a claim to the property or any part of
the property, the receiver is entitled to recover judgment for:
(1) rental for the use of the tangible property from
the later of the entry of the receivership order or the date of the
transfer;
(2) in the case of funds or intangible property, the
greater of:
(A) the actual interest or income earned by the
property; or
(B) interest at the statutory rate for judgments
from the later of the date of the entry of the receivership order or
the date of the transfer; and
(3) except as to recoveries from guaranty
associations, all costs, including investigative costs and other
expenses necessary to the recovery of the property or funds, and
reasonable attorney's fees.
(e) In any action under this section, the receivership court
may allow the receiver to seek recovery of the property involved or
the property's value.
(f) In any action under Sections 21A.201-21A.206, the
receiver has the burden of proving the avoidability of a transfer,
and the person against whom recovery or avoidance is sought has the
burden of proving the nature and extent of any affirmative defense.
Sec. 21A.208. CLAIMS OF HOLDERS OF VOID OR VOIDABLE RIGHTS.
(a) A claim of a creditor who has received or acquired a
preference, lien, conveyance, transfer, assignment, or encumbrance
voidable under this chapter may not be allowed unless the creditor
surrenders the preference, lien, conveyance, transfer, assignment,
or encumbrance. If the avoidance is effected by a proceeding in
which a final judgment has been entered, the claim may not be
allowed unless the money is paid or the property is delivered to the
receiver not later than the 30th day after the date of the entering
of the final judgment, except that the receivership court may allow
further time if there is an appeal or other continuation of the
proceeding.
(b) A claim allowable under Subsection (a) by reason of the
avoidance, whether voluntary or involuntary, or a preference, lien,
conveyance, transfer, assignment, or encumbrance, may be filed as
an excused late filing under Section 21A.251(b) if filed not later
than the 30th day after the date of the avoidance, or within the
further time allowed by the receivership court under Subsection
(a).
Sec. 21A.209. SETOFFS. (a) All mutual debts or mutual
credits, whether arising out of one or more contracts between the
insurer and another person in connection with any action or
proceeding under this chapter, must be set off and only the balance
shall be allowed or paid, except as provided by Subsection (b).
(b) A setoff may not be allowed in favor of any person if:
(1) the obligation of the insurer to the person:
(A) would not, at the date of the commencement of
the delinquency proceeding, entitle the person to share as a
claimant in the assets of the insurer; or
(B) was purchased by or transferred to the
person:
(i) after the commencement of the
delinquency proceeding; or
(ii) for the purpose of increasing setoff
rights;
(2) the obligation of the insurer is owed to an
affiliate of the person, or any other entity or association other
than the person;
(3) the obligation of the person:
(A) is as a trustee or fiduciary; or
(B) is to pay:
(i) an assessment levied against the
members of a mutual insurer, reciprocal or interinsurance exchange,
or Lloyd's plan; or
(ii) a balance upon a subscription to the
capital stock of a capital stock insurance company; or
(4) the obligations between the person and the insurer
arise from reinsurance transactions in which either the person or
the insurer has assumed risks and obligations from the other party
and then has ceded back to that party substantially the same risks
and obligations.
(c) The receiver shall provide an interested person with
accounting statements identifying all debts that are due and
payable. If a person owes the insurer amounts that are due and
payable against which the person asserts a setoff of mutual credits
that, in the future, may become due and payable from the insurer,
the person shall promptly pay the amounts due and payable to the
receiver. Notwithstanding any other provision of this chapter, the
receiver shall promptly and fully refund, to the extent of a
person's prior payments under this section, any mutual credits that
become due and payable to the person by the insurer.
Sec. 21A.210. ASSESSMENTS. (a) As soon as practicable, but
not later than the fourth anniversary of the date of an order of
receivership of an insurer issuing assessable policies, the
receiver shall make a report to the receivership court setting
forth:
(1) the reasonable value of the assets of the insurer;
(2) the insurer's probable total liabilities;
(3) the probable aggregate amount of the assessment
necessary to pay all claims of creditors and expenses in full,
including expenses of administration and costs of collecting the
assessment; and
(4) a recommendation as to whether an assessment
should be made and in what amount.
(b) Upon the basis of the report provided in Subsection (a),
including any supplements and amendments to the report, the
receivership court may approve, solely on application by the
receiver, one or more assessments against all members of the
insurer who are subject to assessment. The order approving the
assessment shall provide instructions regarding notice of the
assessment, deadlines for payment, and other instructions to the
receiver regarding collection of the assessment.
(c) Subject to any applicable legal limits on ability to
assess, the aggregate assessment must be for the amount that the sum
of the probable liabilities, the expenses of administration, and
the estimated cost of collection of the assessment, exceeds the
value of existing assets, with due regard being given to
assessments that cannot be collected economically.
(d) After levy of assessment under Subsection (b), the
receiver shall petition the receivership court for an order
directing each member who has not paid the assessment pursuant to
the levy to show cause why a judgment for the assessment should not
be entered.
(e) At least 20 days before the return day of the order to
show cause, the receiver shall give notice of the order to show
cause to each member liable on the assessment. Notice must be given
by first class mail mailed to the member's last known address as it
appears on the insurer's records, by publication, or by another
method of notification as directed by the receivership court.
Failure of the member or subscriber to receive the notice of the
assessment or of the order, within the time specified in the
assessment or order or at all, is not a defense in a proceeding to
collect the assessment.
(f) If a member does not appear and serve verified
objections upon the receiver on or before the return day of the
order to show cause under Subsection (d), the receivership court
shall make an order adjudging the member liable for the amount of
the assessment against the member under Subsection (d) together
with costs, and the receiver shall have a judgment against the
member for the amount of the assessment and costs in the order.
(g) If on or before the return day of the order to show
cause, the member appears and serves verified objections upon the
receiver, the receivership court may hear and determine the matter
or may appoint a referee to hear it and make an order as the facts
warrant. In the event that the receiver determines that the
objections do not warrant relief from assessment, the member may
request the receivership court to review the matter and vacate the
order to show cause.
(h) The receiver may enforce any order or collect any
judgment under Subsection (f) by any lawful means.
(i) Any assessment of a subscriber or member of an insurer
made by the receiver pursuant to the order of receivership court
fixing the aggregate amount of the assessment against all members
or subscribers and approving the classification and formula made by
the receiver under this section is prima facie correct.
(j) Any claim filed by an assessee who fails to pay an
assessment, after the conclusion of any legal action by the
assessee objecting to the assessment, is deemed a late filed claim
under Section 21A.251.
Sec. 21A.211. REINSURER'S LIABILITY. (a) If the receiver
has claims under policies covered by reinsurance, the liability of
the reinsurer to the receiver under the policies reinsured may not
be diminished because of the insolvency of the insurer, regardless
of any provisions in the reinsurance contract to the contrary,
except under the following circumstances:
(1) a contract or other written agreement entered into
before the delinquency proceeding that is otherwise permitted by
law specifically provides another payee of the reinsurance in the
event of the insolvency of the ceding insurer;
(2) the assuming insurer, under an assumption
reinsurance agreement and with the consent of the direct insured,
has assumed, as direct obligations of the assuming insurer, the
policy obligations of the ceding insurer to the payees under
policies and in substitution for the obligations of the ceding
insurer to those payees; or
(3) a life and health insurance guaranty association
has made the election to succeed to the rights and obligations of
the insolvent insurer under a contract of reinsurance in accordance
with the life and health guaranty association laws of this state or
its domiciliary state or another applicable law, rule, order, or
assignment contract, in which case payments shall be made directly
to or at the direction of the guaranty association.
(b) Except as provided by Subsection (a), any reinsurance
shall be payable to the receiver under a policy reinsured by the
assuming insurer on the basis of claims:
(1) allowed under Section 21A.253; and
(2) paid under:
(A) Article 21.28-C or 21.28-D;
(B) Chapter 2602; or
(C) the guaranty associations of other states.
(c) The liquidator or receiver, as applicable, shall give
written notice to affected reinsurers of the pendency of a claim
against the receiver under a reinsured policy within a reasonable
time after the claim is filed in the delinquency proceeding. During
the pendency of the claim any affected reinsurer may:
(1) investigate the claim; and
(2) intervene, at the reinsurer's own expense, in any
proceeding where the claim is to be adjusted and assert any defense
or defenses which it may deem available to the delinquent company,
the liquidator, or the receiver.
(d) Subject to court approval, an expense incurred under
Subsection (c)(1) or (2) shall be chargeable against the delinquent
company as part of the expense of liquidation, to the extent of a
proportionate share of the benefit which may accrue to the
delinquent company solely as a result of the defense undertaken by
the assuming insurer.
(e) If two or more assuming insurers are involved in the
same claim and a majority in interest elect to intervene and assert
a defense to a claim described by Subsection (c), an expense
incurred under Subsection (c)(1) or (2) shall be apportioned in
accordance with the terms of the reinsurance agreement as though
the expense had been incurred by the ceding insurer.
(f) Nothing in this chapter shall be construed as
authorizing the receiver, or other entity, to compel payment from a
non-life reinsurer on the basis of estimated incurred but not
reported losses or outstanding reserves, except outstanding
reserves with respect to claims made pursuant to Section 21A.255
and approved workers compensation claims filed under Section
21A.252(d).
Sec. 21A.212. RECOVERY OF PREMIUMS OWED. (a) An insured
shall pay, either directly to the receiver or to any agent that has
paid or is obligated to pay the receiver on behalf of the insured,
any unpaid earned premium or retrospectively rated premium due the
insurer based on the termination of coverage under Section 21A.152.
Premium on surety business is deemed earned at inception if a policy
term cannot be determined. All other premium is deemed earned and
is prorated equally over the determined policy term, regardless of
any provision in the bond, guaranty, contract or other agreement.
(b) Any person, other than the insured, shall turn over to
the receiver any unpaid premium due and owing as shown on the
records of the insurer, including any amount representing
commissions, for the full policy term due the insurer at the time of
the entry of the receivership order, whether earned or unearned,
based on the termination of coverage under Section 21A.152. The
unpaid premium due the receiver from any person other than the
insured excludes any premium not collected from the insured and not
earned based on the termination of coverage under Section 21A.152.
(c) Any person, other than the insured, responsible for the
remittance of a premium, shall turn over to the receiver any
unearned commission of the person based on the termination of
coverage under Section 21A.152. Credits, setoffs, or both may not
be allowed to an agent, broker, premium finance company, or any
other person for any amounts advanced to the insurer by the person
on behalf of, but in the absence of a payment by, the insured, or for
any other amount paid by the person to any other person after the
entry of the order of receivership.
(d) Persons that collect premium or finance premium under a
premium finance contract that is due the insurer in receivership
are deemed to hold that premium in trust as fiduciaries for the
benefit of the insurer and to have availed themselves of the laws of
this state, regardless of any provision to the contrary in any
agency contract or other agreement.
(e) Any premium finance company is obligated to pay any
amounts due the insurer from premium finance contracts, whether the
premium is earned or unearned. The receiver has the right to
collect any unpaid financed premium directly from the premium
finance company or directly from the insured that is a party to the
premium finance contract.
(f) Upon satisfactory evidence of a violation of this
section by a person other than an insured, the commissioner may
pursue one or more of the following courses of action:
(1) suspend, revoke, or refuse to renew the licenses
of the offending party or parties; and
(2) impose:
(A) an administrative penalty under Chapter 84 of
not more than $1,000 for each act in violation of this section by
the party or parties; and
(B) any other sanction or penalty authorized by
Chapter 82.
Sec. 21A.213. ADMINISTRATION OF DEDUCTIBLE AGREEMENTS AND
POLICYHOLDER COLLATERAL. (a) Any collateral held to secure the
obligations of a policyholder under a deductible agreement with an
insurer subject to a delinquency proceeding under this chapter must
be maintained and administered as provided in this section. For
purposes of this section, a "deductible agreement" is any
combination of one or more policies, endorsements, contracts, or
security agreements that:
(1) provide for the policyholder to bear the risk of
loss within a specified amount per claim or occurrence covered
under a policy of insurance; and
(2) may be subject to an aggregate limit of
policyholder reimbursement obligations.
(b) This section applies to any collateral described by
Subsection (a), regardless of whether the collateral is held by,
for the benefit of, or assigned to the insurer under a deductible
agreement. The collateral shall be used to secure the
policyholder's obligation to fund or reimburse claims payments
within the agreed deductible amount, subject to this section.
(c) If the contract between the policyholder and the insurer
allows the policyholder to fund claims within the deductible amount
through a third-party administrator or otherwise, the receiver
shall allow that funding arrangement to continue, except as
prohibited by Title 5, Labor Code. If a policyholder funds claims
within the deductible amount, the receiver or any guaranty
association has no obligation to pay claims for the amount funded by
the policyholder, and the policyholder or its third-party
administrator is not obligated to reimburse a guaranty association
for any amount funded. A charge of any kind may not be made against
a guaranty association based on the funding of claims payments by a
policyholder under this subsection.
(d) If the receiver is holding collateral provided by a
policyholder to secure both a deductible agreement and other
obligations of the policyholder, the receiver shall:
(1) allocate the collateral among these obligations in
accordance with the deductible agreement; or
(2) in the absence of an allocation provision in the
deductible agreement and with the approval of the receivership
court, allocate the collateral equitably among these obligations.
(e) If, under Subsection (d), the collateral secures
reimbursement obligations under more than one line of insurance,
the receiver shall equitably allocate the collateral among the
various lines based on the estimated ultimate exposure within the
deductible amount for each line.
(f) If a guaranty association is obligated to pay claims
under a policy under Subsection (d), the receiver shall give notice
to the guaranty associations of any allocation under this section.
(g) Once all claims covered by the collateral have been paid
and the receiver is satisfied that no new claims may be presented,
the receiver shall release any remaining collateral to the
policyholder in accordance with the provisions of the contract and
of this chapter.
(h) To the extent a guaranty association is required by
applicable law to pay any claims for which the insurer would have
been entitled to reimbursement from the policyholder, the following
provisions apply:
(1) The receiver shall promptly invoice the
policyholder for the reimbursement due under the agreement, and the
policyholder is obligated to pay the amount invoiced to the
receiver for the benefit of the guaranty associations that paid the
claims. Neither the insolvency of the insurer nor the insurer's
inability to perform any obligations under the deductible agreement
is a defense to the policyholder's reimbursement obligation under
the deductible agreement. At the time the policyholder
reimbursements are collected, the receiver shall promptly forward
those amounts to the guaranty association, based on the claims paid
by the guaranty association that were subject to the deductible.
(2) If the collateral is insufficient to reimburse the
guaranty association for claims paid within the deductible, the
receiver shall use any existing collateral to make a partial
reimbursement to the guaranty association, subject to any
allocation under Subsection (d), (e), or (f). If more than one
guaranty association has a claim against the same collateral, the
receiver shall prorate payments to each guaranty association based
on the amount of the claims each guaranty association has paid.
(3) The receiver is entitled to deduct from
reimbursements owed to a guaranty association or collateral to be
returned to a policyholder reasonable actual expenses incurred in
fulfilling the receiver's responsibilities under this section.
Expenses incurred to collect reimbursements for the benefit of a
guaranty association are subject to the approval of the guaranty
association. Any remaining expenses that are not deducted from the
reimbursements are payable subject to Section 21A.015.
(4) The receiver shall provide any affected guaranty
associations with a complete accounting of the receiver's
deductible billing and collection activities on a quarterly basis,
or at other intervals as may be agreed to between the receiver and
the guaranty associations. Accountings under this subdivision must
include copies of the policyholder billings, the reimbursements
collected, the available amounts and use of collateral for each
account, and any prorating of payments.
(5) If the receiver fails to make a good faith effort
to collect reimbursements due from a policyholder under a
deductible agreement within 120 days of receipt of claims payment
reports from a guaranty association, the guaranty association may,
after notice to the receiver, collect the reimbursements that are
due, and, in so doing, the guaranty association shall have the same
rights and remedies as the receiver. A guaranty association shall
report any amounts collected under this subdivision and expenses
incurred in collecting those amounts to the receiver.
(6) The receiver shall periodically adjust the
collateral held as the claims subject to the deductible agreement
are paid, provided that adequate collateral is maintained. The
receiver is not required to adjust the collateral more than once a
year. The receiver shall inform the guaranty associations of all
collateral reviews, including the basis for the adjustment.
(7) Reimbursements received or collected by a guaranty
association under this section may not be considered a distribution
of the insurer's assets. A guaranty association shall provide the
receiver with an accounting of any amounts it has received or
collected under this section and any expenses incurred in
connection with that receipt or collection. The amounts received,
net of any expenses incurred in connection with collection of the
amounts, must be set off against the guaranty association's claim
filed under Section 21A.251 for the payments that were reimbursed.
(8) To the extent that a guaranty association pays a
claim within the deductible amount that is not reimbursed by either
the receiver or by policyholder payments, the guaranty association
has a claim for those amounts in the delinquency proceeding in
accordance with Section 21A.251.
(9) Nothing in this section limits any rights of a
guaranty association under applicable law to obtain reimbursement
for claims payments made by the guaranty association under policies
of the insurer or for the association's related expenses.
(i) If a claim that is subject to a deductible agreement and
secured by collateral is not covered by any guaranty association,
the following provisions apply:
(1) The receiver is entitled to retain as an asset of
the estate any collateral or deductible reimbursements obtained by
the receiver.
(2) If a policyholder fails to assume an obligation
under a deductible agreement to pay a claim, the receiver shall use
the collateral to adjust and pay the claim to the extent that the
available collateral, after any allocation under Subsection (d),
(e), or (f), is sufficient to pay all outstanding and anticipated
claims within the deductible. If the collateral is exhausted and
all reasonable means of collection against the insured have been
exhausted, the remaining claims shall be subject to the provisions
of Sections 21A.251 and 21A.301.
(3) The receiver is entitled to deduct from collateral
reasonable actual expenses incurred in fulfilling the receiver's
responsibilities under this section. Any remaining expenses that
are not deducted from the reimbursements are payable subject to
Section 21A.015.
[Sections 21A.214-21A.250 reserved for expansion]
SUBCHAPTER F. CLAIMS
Sec. 21A.251. FILING OF CLAIMS. (a) Except as provided by
this subsection, proof of all claims must be filed with the
liquidator in the form required by Section 21A.252 on or before the
last day for filing specified in the notice required under Section
21A.155, which date may not be later than 18 months after entry of
the order of liquidation, unless the receivership court, for good
cause shown, extends the time, except that proofs of claims for cash
surrender values or other investment values in life insurance and
annuities and for any other policies insuring the lives of persons
need not be filed unless the liquidator expressly so requires. The
receivership court, only upon application of the liquidator, may
allow alternative procedures and requirements for the filing of
proofs of claim or for allowing or proving claims. Upon
application, if the receivership court dispenses with the
requirements of filing a proof of claim by a person or a class or
group of persons, a proof of claim for the person, class, or group
is deemed to have been filed for all purposes, except that the
receivership court's waiver of proof of claim requirements does not
impact guaranty association proof of claim filing requirements or
coverage determinations to the extent the guaranty fund statute or
filing requirements are inconsistent with the receivership court's
waiver of proof.
(b) The liquidator shall permit a claimant that makes a late
filing to share ratably in distributions, whether past or future,
as if the claim were not filed late, to the extent that the payment
will not prejudice the orderly administration of the liquidation,
under the following circumstances:
(1) the eligibility to file a proof of claim was not
known to the claimant, and the claimant filed a proof of claim not
later than the 90th day after the date of first learning of the
eligibility;
(2) a transfer to a creditor was avoided under Section
21A.202, 21A.203, 21A.204, or 21A.206, or was voluntarily
surrendered under Section 21A.208, and the filing satisfies the
conditions of Section 21A.208; or
(3) the valuation under Section 21A.260, of security
held by a secured creditor shows a deficiency, and the claim for the
deficiency is filed not later than the 30th day after the valuation.
(c) The liquidator may petition the receivership court to
set a date before which all late claims under Subsection (b) must be
filed.
(d) The liquidator shall permit guaranty associations to
file claims late and to receive a ratable share of distributions,
whether past or future, as if the claims were not late.
Sec. 21A.252. PROOF OF CLAIM. (a) Proof of claim consists
of a statement signed by the claimant or on behalf of the claimant
that includes all of the following, as applicable:
(1) the particulars of the claim, including the
consideration given for it;
(2) the identity and amount of the security on the
claim;
(3) the payments, if any, made on the debt;
(4) that the sum claimed is justly owing and that there
is no setoff, counterclaim, or defense to the claim;
(5) any right of priority of payment or other specific
right asserted by the claimant;
(6) the name and address of the claimant and the
attorney, if any, who represents the claimant; and
(7) the claimant's social security or federal employer
identification number.
(b) The liquidator may require that:
(1) a prescribed form be used; and
(2) other information and documents be included.
(c) At any time the liquidator may:
(1) require the claimant to present information or
evidence supplementary to that required under Subsection (a); and
(2) take testimony under oath, require production of
affidavits or depositions, or otherwise obtain additional
information or evidence.
(d) Any guaranty association must be permitted to file a
single omnibus proof of claim for all claims of the association in
connection with payment of claims of the insurer. The omnibus proof
of claim may be periodically updated by the association, and the
association may be required to submit a reasonable amount of
documentation in support of the claim. A guaranty association's
claim under this subsection may include amounts for anticipated
payments after the closing of the receivership including incurred
but not reported claims.
Sec. 21A.253. ALLOWANCE OF CLAIMS. (a) Except as provided
in Subsections (i) and (l), the liquidator shall review all claims
duly filed in the liquidation proceeding and shall further
investigate as the liquidator considers necessary. Consistent with
the provisions of this chapter, the liquidator may allow, disallow,
or compromise the amount for which claims will be recommended to the
receivership court, unless the liquidator is required by law to
accept claims as settled by a person or organization, including a
guaranty association, subject to any statutory or contractual
rights of the affected reinsurers to participate in the claims
allowance process. No claim under a policy of insurance may be
allowed for an amount in excess of the applicable policy limits.
(b) Pursuant to the review, the liquidator shall provide
written notice of the claim determination by any means authorized
by Section 21A.007 to the claimant or the claimant's attorney and
may provide notice to any reinsurer that is or may be liable in
respect of the claim. The notice must set forth the amount of the
claim allowed by the liquidator, if any, and the priority class of
the claim as established in Section 21A.301.
(c) Not later than the 45th day after the mailing of the
notice as set forth in Subsection (b), those noticed may submit
written objections to the liquidator. Any submitted objections
must clearly set out all facts and the legal basis, if any, for the
objections and the reasons why the claim should be allowed at a
different amount or in a different priority class. If no timely
objection is filed, the determination is final.
(d) A claim that has not become mature as of the coverage
termination date established under Section 21A.201 because payment
on the claim is not yet due may be allowed as if it were mature. A
claim that is allowed under this subsection may be discounted to
present value based upon a reasonable estimated date of the
payment, if the liquidator determines that the present value of the
payment is materially less than the amount of the payment.
(e) A judgment or order against an insured or the insurer
entered after the date of the initial filing of a successful
petition for receivership, or within 120 days before the initial
filing of the petition, and a judgment or order against an insured
or the insurer entered at any time by default or by collusion need
not be considered as evidence of liability or of the amount of
damages.
(f) Claims under employment contracts by directors,
officers, or persons in fact performing similar functions or having
similar powers are limited to payment for services rendered prior
to any order of receivership, unless explicitly approved in writing
by:
(1) the commissioner prior to an order of
receivership;
(2) the rehabilitator before the entry of an order of
liquidation; or
(3) the liquidator after the entry of an order of
liquidation.
(g) The total liability of the insurer to all claimants
arising out of the same act or policy may not be greater than the
insurer's total liability would have been were the insurer not in
liquidation.
(h) The liquidator shall disallow claims for de minimis
amounts as determined by the receivership court as being reasonable
and necessary for administrative convenience.
(i) A claim that does not contain all the applicable
information required by Section 21A.252 need not be further
reviewed or adjudicated, and may be denied or disallowed by the
liquidator subject to the notice and objection procedures in this
section.
(j) The liquidator may reconsider a claim on the basis of
additional information and amend the recommendation to the
receivership court. The claimant must be afforded the same notice
and opportunity to be heard on all changes in the recommendation as
in its initial determination. The receivership court may amend its
allowance or disallowance as appropriate.
(k) The liquidator is not required to process claims for any
class until it appears reasonably likely that property will be
available for a distribution to that class. If there are
insufficient assets to justify processing all claims for any class
listed in Section 21A.301, the liquidator shall report the facts to
the receivership court and make such recommendations as may be
appropriate for handling the remainder of the claims.
(l) Any claim by a lessor for damages resulting from the
termination of a lease of real property shall be disallowed to the
extent that the claim exceeds:
(1) the rent reserved by the lease, without
acceleration, for the longer of one year or 15 percent of the
remaining term of the lease, not to exceed three years, following
the earlier of:
(A) the date of the filing of the petition; or
(B) the date on which the lessor repossessed or
the lessee surrendered the leased property; and
(2) any unpaid rent due under the lease, without
acceleration, on the earlier of the dates described by Subdivision
(1).
(m) If a claim is fully covered by a guaranty association,
the liquidator has no obligation to process the claim in accordance
with this section and may refuse to process the claim in accordance
with this section.
Sec. 21A.254. CLAIMS UNDER OCCURRENCE POLICIES, SURETY
BONDS, AND SURETY UNDERTAKINGS. (a) Subject to the provisions of
Section 21A.253, any insured has the right to file a claim for the
protection afforded under the insured's policy, regardless of
whether a claim is known at the time of filing, if the policy is an
occurrence policy.
(b) Subject to the provisions of Section 21A.253, an obligee
under a surety bond or surety undertaking has the right to file a
claim for the protection afforded under the surety bond or surety
undertaking issued by the insurer under which the obligee is the
beneficiary, regardless of whether a claim is known at the time of
filing.
(c) After a claim is filed under Subsection (a) or (b), at
the time that a specific claim is made by or against the insured or
by the obligee, the insured or the obligee shall supplement the
claim, and the receiver shall treat the claim as a contingent or
unliquidated claim under Section 21A.255.
Sec. 21A.255. ALLOWANCE OF CONTINGENT AND UNLIQUIDATED
CLAIMS. (a) A claim of an insured or third party may be allowed
under Section 21A.253, regardless of the fact that the claim was
contingent or unliquidated, if any contingency is removed in
accordance with Subsection (b) and the value of the claim is
determined. For purposes of this section, a claim is contingent if:
(1) the accident, casualty, disaster, loss, event, or
occurrence insured, reinsured, or bonded or reinsured against
occurred on or before the date fixed under Section 21A.151; and
(2) the act or event triggering the insurer's
obligation to pay has not occurred as of the date fixed under
Section 21A.151.
(b) Unless the receivership court directs otherwise, a
contingent claim may be allowed if the claimant has presented proof
reasonably satisfactory to the liquidator of the insurer's
obligation to pay or the claim was based on a cause of action
against an insured of the insurer and:
(1) it may be reasonably inferred from proof presented
upon the claim that the claimant would be able to obtain a judgment;
and
(2) the person has furnished suitable proof, unless
the receivership court for good cause shown otherwise directs, that
no further valid claims can be made against the insurer arising out
of the cause of action other than those already presented.
(c) The liquidator may petition the receivership court to
set a date before which all claims under this section are final. In
addition to the notice requirements of Section 21A.007, the
liquidator shall give notice of the filing of the petition to all
claimants with claims that remain contingent or unliquidated under
this section.
Sec. 21A.256. SPECIAL PROVISIONS FOR THIRD-PARTY CLAIMS.
(a) When any third party asserts a cause of action against an
insured of an insurer in liquidation, the third party may file a
claim with the liquidator on or before the last day for filing
claims.
(b) Whether or not the third party files a claim, the
insured may file a claim on the insured's own behalf in the
liquidation.
(c) The liquidator may make recommendations to the
receivership court for the allowance of an insured's claim after
consideration of the probable outcome of any pending action against
the insured on which the claim is based, the probable damages
recoverable in the action, and the probable costs and expenses of
defense. After allowance by the receivership court, the liquidator
shall withhold any distribution payable on the claim, pending the
outcome of litigation and negotiation between the insured and the
third party. The liquidator may reconsider the claim as provided in
Section 21A.253(j). As claims against the insured are settled or
barred, the insured or third party, as appropriate, shall be paid
from the amount withheld the same percentage distribution as was
paid on other claims of like priority, based on the lesser of the
amount actually due from the insured by action or paid by agreement
plus the reasonable costs and expense of defense, or the amount
allowed on the claims by the receivership court. After all claims
are settled or barred, any sum remaining from the amount withheld
shall revert to the undistributed property of the insurer.
(d) If several claims founded upon one policy are timely
filed under this section, whether by third parties or as claims by
the insured, and the aggregate amount of the timely filed allowed
claims exceeds the aggregate policy limits, the liquidator may:
(1) apportion the policy limits ratably among the
timely filed allowed claims; or
(2) give notice to the insured, known third parties,
and affected guaranty associations that the aggregate policy limits
have been exceeded. On and after the 30th day after the date of the
liquidator's notice, further amounts may not be allowed, the policy
limits shall be apportioned ratably among the timely filed allowed
claims, and any additional claims shall be rejected.
(e) Claims by the insured under Subsection (d) must be
evaluated as described by Subsection (c). If any insured's claim is
subsequently reduced under Subsection (c), the amount freed by the
reduction must be apportioned ratably among the claims which have
been reduced under Subsection (d).
(f) A claim may not be allowed under this section to the
extent the claim is covered by any guaranty association.
(g) A claimant may withdraw a proof of claim with the
liquidator's approval. The liquidator may approve the withdrawal
only upon a showing of good cause and after giving notice of the
withdrawal to the insured.
(h) The filing of a proof of claim in connection with a claim
against an insured has the following effect on the rights of the
claimant and the insured:
(1) By filing a proof of claim, a claimant waives any
right to pursue the personal assets of the insured with respect to
the claim, to the extent of the coverage or policy limits provided
by the insurer, and agrees that to the extent of the coverage or
policy limits provided by the insurer, the claimant will seek
satisfaction of the claim against the insured solely from
distributions paid by the liquidator on the claim and from any
payments that a guaranty association may pay on account of the
claim, except as provided in this section.
(2) The waiver provided under this section is
conditioned upon the cooperation of the insured with the liquidator
and any applicable guaranty association in the defense of the
claim. The waiver provided under this section does not operate to:
(A) discharge the guaranty association from any
of the association's responsibilities and duties;
(B) release the insured with respect to any claim
in excess of the coverage or policy limits provided by the insurer
or any other responsible party; or
(C) release the insured with respect to any claim
by a guaranty association for reimbursement under the law
applicable to the guaranty association.
(3) The waiver provided under this section is void if:
(A) a claimant withdraws the claimant's proof of
claim under Subsection (g); or
(B) the liquidator avoids insurance coverage in
connection with a proof of the claim.
(4) The liquidator shall provide, where applicable,
notice of the election of remedies provision in this section on any
proof of claim form the liquidator distributes. The notice must be
inserted above the claimant's signature line in typeface not
smaller than the typeface of the rest of the notice and, in any
event not smaller than a 14-point font, and must include a statement
substantially similar to the following: "I understand by filing
this claim in the estate of the insurer I am waiving any right to
pursue the personal assets of the insured to the extent that there
are policy limits or coverage provided by the now insolvent
insurer."
Sec. 21A.257. DISPUTED CLAIMS. (a) When objections to the
liquidator's proposed treatment of a claim are filed and the
liquidator does not alter the determination of the claim as a result
of the objections, the liquidator shall ask the receivership court
for a hearing pursuant to Section 21A.007.
(b) The provisions of this section are not applicable to
disputes with respect to coverage determinations by a guaranty
association as part of the association's statutory obligations.
(c) The final disposition by the receivership court of a
disputed claim is deemed a final judgment for purposes of appeal.
Sec. 21A.258. LIQUIDATOR'S RECOMMENDATIONS TO RECEIVERSHIP
COURT. The liquidator shall present to the receivership court, for
approval, reports of claims settled or determined by the liquidator
under Section 21A.253. The reports must be presented from time to
time as determined by the liquidator and must include information
identifying the claim and the amount and priority class of the
claim.
Sec. 21A.259. CLAIMS OF CODEBTORS. If a creditor does not
timely file a proof of the creditor's claim, an entity that is
liable to the creditor together with the insurer, or that has
secured the creditor, may file a proof of the claim.
Sec. 21A.260. SECURED CREDITORS' CLAIMS. (a) The value of
any security held by a secured creditor must be determined in one of
the following ways:
(1) by converting the same into money according to the
terms of the agreement pursuant to which the security was delivered
to the creditor; or
(2) by agreement or litigation between the creditor
and the liquidator.
(b) If a surety has paid any losses or loss adjustment
expenses under its own surety instrument before any petition
initiating a delinquency proceeding is filed and the principal to
the instrument has posted collateral that remains available to
reimburse the losses or loss adjustment expenses at the time the
petition is filed and that collateral has not been credited against
the payments made, then the receiver has the first priority to use
the collateral to reimburse the surety for any pre-petition losses
and expenses.
(c) If the principal under a surety bond or surety
undertaking has pledged any collateral, including a guaranty or
letter of credit, to secure the principal's reimbursement
obligation to the insurer issuing the bond or undertaking, the
claim of any obligee, or subject to the discretion of the receiver,
of any completion contractor under the surety bond or surety
undertaking must be satisfied first out of the collateral or its
proceeds.
(d) In making any distribution to an obligee or completion
contractor under Subsection (c), the receiver shall retain a
sufficient reserve for any other potential claim against that
collateral.
(e) If collateral is insufficient to satisfy in full all
potential claims against it under Subsections (c) and (g), the
claims against the collateral must be paid on a pro rata basis, and
an obligee or completion contractor under Subsection (c) has a
claim, subject to allowance under Section 21A.253, for any
deficiency.
(f) If the time to assert claims against a surety bond or a
surety undertaking has expired, and all claims described by this
section have been satisfied in full, any remaining collateral
pledged under the surety bond or surety undertaking must be
returned to the principal under the bond or undertaking.
(g) To the extent that a guaranty association has made a
payment relating to a claim against a surety bond, the guaranty
association shall first be reimbursed for that payment and related
expenses out of the available collateral or proceeds related to the
surety bond. To the extent that the collateral is sufficient, the
guaranty association shall be reimbursed 100 percent of its
payment. If the collateral is insufficient to satisfy in full all
potential claims against the collateral under Subsection (c) and
this subsection, a guaranty association that has paid claims on the
surety bond is entitled to a pro rata share of the available
collateral in accordance with Subsection (e), and the guaranty
association has claims against the general assets of the estate in
accordance with Section 21A.253 for any deficiency. Any payment
made to a guaranty association under this subsection from
collateral may not be deemed early access or otherwise deemed a
distribution out of the general assets or property of the estate,
and the guaranty association receiving payment shall subtract any
payment from the collateral from the association's final claims
against the estate.
(h) An amount determined under Subsection (a) shall be
credited upon the secured claim, and the claimant may file a proof
of claim, subject to all other provisions of this chapter for any
deficiency, which must be treated as an unsecured claim. If the
claimant surrenders the claimant's security to the liquidator, the
entire claim is treated as if unsecured.
(i) The liquidator may recover from property securing an
allowed secured claim the reasonable, necessary costs and expenses
of preserving or disposing of the property to the extent of any
benefit to the holder of such claim.
Sec. 21A.261. QUALIFIED FINANCIAL CONTRACTS. (a)
Notwithstanding any other provision of this chapter, including any
other provision of this chapter permitting the modification of
contracts, or other law of this state, a person may not be stayed or
prohibited from exercising:
(1) a contractual right to terminate, liquidate, or
close out any netting agreement or qualified financial contract
with an insurer because of:
(A) the insolvency, financial condition, or
default of the insurer at any time, provided that the right is
enforceable under applicable law other than this chapter; or
(B) the commencement of a formal delinquency
proceeding under this chapter;
(2) any right under a pledge, security, collateral, or
guarantee agreement, or any other similar security arrangement or
credit support document, relating to a netting agreement or
qualified financial contract; or
(3) subject to any provision of Section 21A.209(b),
any right to set off or net out any termination value, payment
amount, or other transfer obligation arising under or in connection
with a netting agreement or qualified financial contract where the
counterparty or its guarantor is organized under the laws of the
United States or a state or foreign jurisdiction approved by the
Securities Valuation Office of the National Association of
Insurance Commissioners as eligible for netting.
(b) Upon termination of a netting agreement, the net or
settlement amount, if any, owed by a nondefaulting party to an
insurer against which an application or petition has been filed
under this chapter shall be transferred to, or on the order of the
receiver for, the insurer, even if the insurer is the defaulting
party and notwithstanding any provision in the netting agreement
that may provide that the nondefaulting party is not required to pay
any net or settlement amount due to the defaulting party upon
termination. Any limited two-way payment provision in a netting
agreement with an insurer that has defaulted is deemed to be a full
two-way payment provision as against the defaulting insurer. Any
such property or amount is, except to the extent it is subject to
one or more secondary liens or encumbrances, a general asset of the
insurer.
(c) In making any transfer of a netting agreement or
qualified financial contract of an insurer subject to a proceeding
under this chapter, the receiver shall either:
(1) transfer to one party, other than an insurer
subject to a proceeding under this chapter, all netting agreements
and qualified financial contracts between a counterparty or any
affiliate of the counterparty and the insurer that is the subject of
the proceeding, including:
(A) all rights and obligations of each party
under each netting agreement and qualified financial contract; and
(B) all property, including any guarantees or
credit support documents, securing any claims of each party under
each netting agreement and qualified financial contract; or
(2) transfer none of the netting agreements, qualified
financial contracts, rights, obligations, or property referred to
in Subdivision (1), with respect to the counterparty and any
affiliate of the counterparty.
(d) If a receiver for an insurer makes a transfer of one or
more netting agreements or qualified financial contracts, the
receiver shall use its best efforts to notify any person who is
party to the netting agreements or qualified financial contracts of
the transfer not later than noon, the receiver's local time, on the
business day following the transfer. For purposes of this
subsection, "business day" means a day other than a Saturday, a
Sunday, or any day on which either the New York Stock Exchange or
the Federal Reserve Bank of New York is closed.
(e) Notwithstanding any other provision of this chapter, a
receiver may not avoid a transfer of money or other property arising
under or in connection with a netting agreement or qualified
financial contract, or any pledge, security, or collateral or
guarantee agreement or any other similar security arrangement or
credit support document relating to a netting agreement or
qualified financial contract, that is made before the commencement
of a formal delinquency proceeding under this chapter. However, a
transfer may be avoided under Section 21A.205(a) if the transfer
was made with actual intent to hinder, delay, or defraud the
insurer, a receiver appointed for the insurer, or existing or
future creditors.
(f) In exercising any of the receiver's powers under this
chapter to disaffirm or repudiate a netting agreement or qualified
financial contract, the receiver shall take action with respect to
each netting agreement or qualified financial contract and all
transactions entered into in connection with the agreement or
contract in its entirety. Notwithstanding any other provision of
this chapter, any claim of a counterparty against the estate
arising from the receiver's disaffirmance or repudiation of a
netting agreement or qualified financial contract that has not been
previously affirmed in the liquidation or immediately preceding
rehabilitation case must be determined and must be allowed or
disallowed as if the claim had arisen before the date of the filing
of the petition for liquidation or, if a rehabilitation proceeding
is converted to a liquidation proceeding, as if the claim had arisen
before the date of the filing of the petition for rehabilitation.
The amount of the claim must be the actual direct compensatory
damages determined as of the date of the disaffirmance or
repudiation of the netting agreement or qualified financial
contract. For purposes of this subsection, the term "actual direct
compensatory damages" does not include punitive or exemplary
damages, damages for lost profit or lost opportunity, or damages
for pain and suffering but does include normal and reasonable costs
of cover or other reasonable measures of damages utilized in the
derivatives market for the contract and agreement claims.
(g) For purposes of this section, the term "contractual
right" includes any right, whether or not evidenced in writing,
arising under:
(1) statutory or common law;
(2) a rule or bylaw of a national securities exchange,
national securities clearing organization, or securities clearing
agency;
(3) a rule, bylaw, or resolution of the governing body
of a contract market or its clearing organization; or
(4) law merchant.
(h) The provisions of this section do not apply to persons
who are affiliates of the insurer that is the subject of the
proceeding.
(i) All rights of counterparties under this chapter apply to
netting agreements and qualified financial contracts entered into
on behalf of the general account or separate accounts if the assets
of each separate account are available only to counterparties to
netting agreements and qualified financial contracts entered into
on behalf of that separate account.
[Sections 21A.262-21A.300 reserved for expansion]
SUBCHAPTER G. DISTRIBUTIONS
Sec. 21A.301. PRIORITY OF DISTRIBUTION. The priority of
payment of distributions on unsecured claims must be in accordance
with the order in which each class of claims is set forth in this
section. Every claim in each class shall be paid in full, or
adequate funds retained for their payment, before the members of
the next class receive payment, and all claims within a class must
be paid substantially the same percentage of the amount of the
claim. Except as provided by Subsections (a)(2), (a)(3), (i), and
(k), subclasses may not be established within a class. No claim by
a shareholder, policyholder, or other creditor shall be permitted
to circumvent the priority classes through the use of equitable
remedies. The order of distribution of claims shall be:
(a) Class 1. (1) The costs and expenses of administration
expressly approved or ratified by the liquidator, including the
following:
(A) the actual and necessary costs of preserving
or recovering the property of the insurer;
(B) reasonable compensation for all services
rendered on behalf of the administrative supervisor or receiver;
(C) any necessary filing fees;
(D) the fees and mileage payable to witnesses;
(E) unsecured loans obtained by the receiver; and
(F) expenses, if any, approved by the
rehabilitator of the insurer and incurred in the course of the
rehabilitation that are unpaid at the time of the entry of the order
of liquidation.
(2) The reasonable expenses of a guaranty association,
including overhead, salaries and other general administrative
expenses allocable to the receivership to include administrative
and claims handling expenses and expenses in connection with
arrangements for ongoing coverage, other than expenses incurred in
the performance of duties under Section 2602.113, Section 2(3) of
Article 21.28-C, and Section 12 of Article 21.28-D or similar
duties under the statute governing a similar organization in
another state. In the case of the Texas Property and Casualty
Insurance Guaranty Association and other property and casualty
guaranty associations, the expenses shall include loss adjustment
expenses, including adjusting and other expenses and defense and
cost containment expenses. In the event that there are
insufficient assets to pay all of the costs and expenses of
administration under Subsection (a)(1) and the expenses of a
guaranty association, the costs and expenses under Subsection
(a)(1) shall have priority over the expenses of a guaranty
association. In this event, the expenses of a guaranty association
shall be paid on a pro rata basis after the payment of costs and
expenses under Subsection (a)(1) in full.
(3) For purposes of Subsection (a)(1)(E), any
unsecured loan obtained by the receiver, unless by its terms it
otherwise provides, has priority over all other costs of
administration. Absent agreement to the contrary, all claims in
this subclass share pro rata.
(4) Except as expressly approved by the receiver, any
expenses arising from a duty to indemnify the directors, officers,
or employees of the insurer are excluded from this class and, if
allowed, are Class 5 claims.
(b) Class 2. All claims under policies of insurance,
including third-party claims, claims under nonassessable policies
for unearned premium, claims of obligees and, subject to the
discretion of the receiver, completion contractors under surety
bonds and surety undertakings other than bail bonds, mortgage or
financial guaranties, or other forms of insurance offering
protection against investment risk, claims by principals under
surety bonds and surety undertakings for wrongful dissipation of
collateral by the insurer or its agents, and claims incurred during
the extension of coverage provided for in Section 21A.152. All
other claims incurred in fulfilling the statutory obligations of a
guaranty association not included in Class 1, including indemnity
payments on covered claims and, in the case of the Life, Accident,
Health, and Hospital Service Insurance Guaranty Association or
another life and health guaranty association, all claims as a
creditor of the impaired or insolvent insurer for all payments of
and liabilities incurred on behalf of covered claims or covered
obligations of the insurer and for the funds needed to reinsure
those obligations with a solvent insurer. Notwithstanding any
provision of this chapter, the following claims are excluded from
Class 2 priority:
(1) obligations of the insolvent insurer arising out
of reinsurance contracts;
(2) obligations, excluding unearned premium claims on
policies other than reinsurance agreements, incurred after:
(A) the expiration date of the insurance policy;
(B) the policy has been replaced by the insured
or canceled at the insured's request; or
(C) the policy has been canceled as provided by
this chapter;
(3) obligations to insurers, insurance pools, or
underwriting associations and their claims for contribution,
indemnity, or subrogation, equitable or otherwise;
(4) any claim that is in excess of any applicable
limits provided in the insurance policy issued by the insurer;
(5) any amount accrued as punitive or exemplary
damages unless expressly covered under the terms of the policy;
(6) tort claims of any kind against the insurer and
claims against the insurer for bad faith or wrongful settlement
practices; and
(7) claims of the guaranty associations for
assessments not paid by the insurer, which must be paid as claims in
Class 5.
(c) Class 3. Claims of the federal government not included
in Class 3.
(d) Class 4. Debts due employees for services or benefits
to the extent that the debts do not exceed $5,000 or two months
salary, whichever is the lesser, and represent payment for services
performed within one year before the entry of the initial order of
receivership. This priority is in lieu of any other similar
priority that may be authorized by law as to wages or compensation
of employees.
(e) Class 5. Claims of other unsecured creditors not
included in Classes 1 through 4, including claims under reinsurance
contracts, claims of guaranty associations for assessments not paid
by the insurer, and other claims excluded from Class 2.
(f) Class 6. Claims of any state or local governments,
except those specifically classified elsewhere in this section.
Claims of attorneys for fees and expenses owed them by an insurer
for services rendered in opposing a formal delinquency proceeding.
In order to prove the claim, the claimant must show that the insurer
that is the subject of the delinquency proceeding incurred the fees
and expenses based on its best knowledge, information, and belief,
formed after reasonable inquiry, indicating opposition was in the
best interests of the insurer, was well grounded in fact, and was
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law, and that
opposition was not pursued for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the
cost of the litigation.
(g) Class 7. Claims of any state or local government for a
penalty or forfeiture, but only to the extent of the pecuniary loss
sustained from the act, transaction, or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual costs
occasioned thereby. The balance of the claims must be treated as
Class 9 claims under Subsection (i).
(h) Class 8. Except as provided in Sections 21A.251(b) and
(d), late filed claims that would otherwise be classified in
Classes 2 through 7.
(i) Class 9. Surplus notes, capital notes or contribution
notes or similar obligations, premium refunds on assessable
policies, and any other claims specifically assigned to this class.
Claims in this class are subject to any subordination agreements
related to other claims in this class that existed before the entry
of the liquidation order.
(j) Class 10. Interest on allowed claims of Classes 1
through 9, according to the terms of a plan proposed by the
liquidator and approved by the receivership court.
(k) Class 11. Claims of shareholders or other owners
arising out of their capacity as shareholders or other owners, or
any other capacity, except as they may be qualified in Class 2, 5,
or 10. Claims in this class are subject to any subordination
agreements related to other claims in this class that existed
before the entry of the liquidation order.
Sec. 21A.302. PARTIAL AND FINAL DISTRIBUTIONS OF ASSETS.
(a) With the approval of the receivership court, the liquidator may
declare and pay one or more distributions to claimants whose claims
have been allowed. Distributions paid under this subsection must
be paid at substantially the same percentage of the amount of the
claim.
(b) In determining the percentage of distributions to be
paid on these claims, the liquidator may consider the estimated
value of the insurer's property, including estimated reinsurance
recoverables in connection with the insurer's estimated
liabilities for unpaid losses and loss expenses and for incurred
but not reported losses and loss expenses, and the estimated value
of the insurer's liabilities, including estimated liabilities for
unpaid losses and loss expenses and for incurred but not reported
losses and loss expenses.
(c) Distribution of property in kind may be made at
valuations set by agreement between the liquidator and the creditor
and approved by the receivership court.
(d) Notwithstanding the provisions of Subsection (a) and
Subchapter D, the liquidator is authorized to pay benefits under a
workers' compensation policy after the entry of the liquidation
order if:
(1) the insurer has accepted liability and no bona
fide dispute exists;
(2) payments under the policy commenced before the
entry of the liquidation order; and
(3) future or past indemnity or medical payments are
due under the policy.
(e) Claim payments made under Subsection (d) may continue
until the date that a guaranty association assumes responsibility
for claim payments under the policy.
(f) Any claim payments made under Subsection (d) and any
related expenses must be treated as early access payments under
Section 21A.303 to the guaranty association responsible for the
claims.
Sec. 21A.303. EARLY ACCESS PAYMENTS. (a) For purposes of
this section, "distributable assets" means all general assets of
the liquidation estate less:
(1) amounts reserved, to the extent necessary and
appropriate, for the entire Section 21A.301(a) expenses of the
liquidation through and after its closure; and
(2) to the extent necessary and appropriate, reserves
for distributions on claims other than those of the guaranty
associations falling within the priority classes of claims
established in Section 21A.301(c).
(b) Early access payments to guaranty associations must be
made as soon as possible after the entry of a liquidation order and
as frequently as possible after the entry of the order, but at least
annually if distributable assets are available to be distributed to
the guaranty associations, and must be in amounts consistent with
this section. Amounts advanced to an affected guaranty association
pursuant to this section shall be accounted for as advances against
distributions to be made under Section 21A.302. Where sufficient
distributable assets are available, amounts advanced are not
limited to the claims and expenses paid to date by the guaranty
associations; however, the liquidator may not distribute
distributable assets to the guaranty associations in excess of the
anticipated entire claims of the guaranty associations falling
within the priority classes of claims established in Sections
21A.301(b) and (c).
(c) Within 120 days after the entry of an order of
liquidation by the receivership court, and at least annually after
the entry of the order, the liquidator shall apply to the
receivership court for approval to make early access payments out
of the general assets of the insurer to any guaranty associations
having obligations arising in connection with the liquidation or
shall report that there are no distributable assets at that time
based on financial reporting as required in Section 21A.016. The
liquidator may apply to the receivership court for approval to make
early access payments more frequently than annually based on
additional information or the recovery of material assets.
(d) Within 60 days after approval by the receivership court
of the applications in Subsection (c), the liquidator shall make
any early access payments to the affected guaranty associations as
indicated in the approved application.
(e) Notice of each application for early access payments, or
of any report required pursuant to this section, must be given in
accordance with Section 21A.007 to the guaranty associations that
may have obligations arising from the liquidation. Notwithstanding
the provisions of Section 21A.007, the liquidator shall provide
these guaranty associations with at least 30 days' actual notice of
the filing of the application and with a complete copy of the
application prior to any action by the receivership court. Any
guaranty association that may have obligations arising in
connection with the liquidation has:
(1) the right to request additional information from
the liquidator, who may not unreasonably deny such request; and
(2) the right to object as provided by Section 21A.007
to any part of each application or to any report filed by the
liquidator pursuant to this section.
(f) In each application regarding early access payments,
the liquidator shall, based on the best information available to
the liquidator at the time, provide, at a minimum, the following:
(1) to the extent necessary and appropriate, the
amount reserved for the entire expenses of the liquidation through
and after its closure and for distributions on claims falling
within the priority classes of claims established in Sections
21A.301(b) and (c);
(2) the computation of distributable assets and the
amount and method of equitable allocation of early access payments
to each of the guaranty associations; and
(3) the most recent financial information filed with
the National Association of Insurance Commissioners by the
liquidator.
(g) Each guaranty association that receives any payments
pursuant to this section agrees, upon depositing the payment in any
account to its benefit, to return to the liquidator any amount of
these payments that may be required to pay claims of secured
creditors and claims falling within the priority classes of claims
established in Section 21A.301(a), (b), or (c). No bond may be
required of any guaranty association.
(h) Nothing in this section affects the method by which a
guaranty association determines the association's statutory
coverage obligations.
(i) Without the consent of the affected guaranty
associations or an order of the receivership court, the liquidator
may not offset the amount to be dispersed to any guaranty
association by the amount of any specific deposit or any other
statutory deposit or asset of the insolvent insurer held in that
state unless the association has actually received the deposit.
Sec. 21A.304. UNCLAIMED AND WITHHELD FUNDS. (a) If any
funds of the receivership estate remain unclaimed after the final
distribution under Section 21A.302, the funds must be placed in a
segregated unclaimed funds account held by the commissioner. If
the owner of any of the unclaimed funds presents proof of ownership
satisfactory to the commissioner before the second anniversary of
the date of the termination of the delinquency proceeding, the
commissioner shall remit the funds to the owner. The interest
earned on funds held in the unclaimed funds account may be used to
pay any administrative costs related to the handling or return of
unclaimed funds.
(b) If any amounts held in the unclaimed funds account
remain unclaimed on or after the second anniversary of the date of
the termination of the delinquency proceeding, the commissioner may
file a motion for an order directing the disposition of the funds in
the court in which the delinquency proceeding was pending. Any
costs incurred in connection with the motion may be paid from the
unclaimed funds account. The motion shall identify the name of the
insurer, the names and last known addresses of the persons entitled
to the unclaimed funds, if known, and the amount of the funds.
Notice of the motion shall be given as directed by the court. Upon a
finding by the court that the funds have not been claimed before the
second anniversary of the date of the termination of the
delinquency proceeding, the court shall order that any claims for
unclaimed funds and any interest earned on the unclaimed funds that
has not been expended under Subsection (a) are abandoned and that
the funds must be disbursed under one of the following methods:
(1) the amounts may be deposited in the general
receivership expense account under Subsection (c);
(2) the amounts may be transferred to the comptroller,
and deposited into the general revenue fund; or
(3) the amounts may be used to reopen the receivership
in accordance with Section 21A.353 and be distributed to the known
claimants with approved claims.
(c) The commissioner may establish an account for the
following purposes:
(1) to pay general expenses related to the
administration of receiverships; and
(2) to advance funds to any receivership that does not
have sufficient cash to pay its operating expenses.
(d) Any advance to a receivership under Subsection (c)(2)
may be treated as a claim under Section 21A.301 as agreed at the
time the advance is made or, in the absence of an agreement, in the
priority determined to be appropriate by the court.
(e) If the commissioner determines at any time that the
funds in the account exceed the amount required, the commissioner
may transfer the funds or any part of the funds to the comptroller,
and the transferred funds must be deposited into the general
revenue fund.
[Sections 21A.305-21A.350 reserved for expansion]
SUBCHAPTER H. DISCHARGE
Sec. 21A.351. CONDITION ON RELEASE FROM DELINQUENCY
PROCEEDINGS. Until all payments of or on account of the insurer's
contractual obligations by all guaranty associations, along with
all expenses of the obligations and interest on all the payments and
expenses, are repaid to the guaranty associations, unless otherwise
provided in a plan approved by the guaranty association, an insurer
that is subject to any formal delinquency proceedings may not:
(1) solicit or accept new business or request or
accept the restoration of any suspended or revoked license or
certificate of authority;
(2) be returned to the control of its shareholders or
private management; or
(3) have any of its assets returned to the control of
its shareholders or private management.
Sec. 21A.352. TERMINATION OF LIQUIDATION PROCEEDINGS. When
all property justifying the expense of collection and distribution
has been collected and distributed under this chapter, the
liquidator shall apply to the receivership court for an order
discharging the liquidator and terminating the proceeding. The
receivership court may grant the application and make any other
orders, including orders to transfer any remaining funds that are
uneconomic to distribute, or pursuant to Section 21A.302(c), assign
any assets that remain unliquidated, including claims and causes of
action, as may be deemed appropriate.
Sec. 21A.353. REOPENING RECEIVERSHIP. After the
liquidation proceeding has been terminated and the liquidator
discharged, the commissioner or other interested party may at any
time petition the court to reopen the delinquency proceeding for
good cause, including the discovery of additional property. If the
court is satisfied that there is justification for reopening, it
shall so order.
Sec. 21A.354. DISPOSITION OF RECORDS DURING AND AFTER
TERMINATION OF RECEIVERSHIP. (a) When it appears to the receiver
that the records of the insurer in receivership are no longer
useful, the receiver may recommend to the receivership court and
the receivership court shall direct what records should be
destroyed.
(b) If the receiver determines that any records should be
maintained after the closing of the delinquency proceeding, the
receiver may reserve property from the receivership estate for the
maintenance of the records, and any amounts so retained are
administrative expenses of the estate under Section 21A.301(a).
Any records retained pursuant to this subsection must be
transferred to the custody of the commissioner, and the
commissioner may retain or dispose of the records as appropriate,
at the commissioner's discretion. Any records of a delinquent
insurer that are transferred to the commissioner may not be
considered records of the department for any purposes, and Chapter
552, Government Code, does not apply to those records.
Sec. 21A.355. EXTERNAL AUDIT OF THE RECEIVER'S BOOKS. (a)
The receivership court may, as it deems desirable, order audits to
be made of the books of the receiver relating to any receivership
established under this chapter. A report of each audit shall be
filed with the commissioner and with the receivership court.
(b) The books, records, and other documents of the
receivership must be made available to the auditor at any time
without notice.
(c) The expense of each audit shall be considered a cost of
administration of the receivership.
[Sections 21A.356-21A.400 reserved for expansion]
SUBCHAPTER I. INTERSTATE RELATIONS
Sec. 21A.401. ANCILLARY CONSERVATION OF FOREIGN INSURERS.
(a) The commissioner may initiate an action against a foreign
insurer pursuant to Section 21A.051 on any of the grounds stated in
that section or on the basis that:
(1) any of the foreign insurer's property has been
sequestered, garnished, or seized by official action in its
domiciliary state or in any other state;
(2) the foreign insurer's certificate of authority to
do business in this state has been revoked or was never issued and
there are residents of this state with unpaid claims or in-force
policies; or
(3) initiation of the action is necessary to enforce a
stay under Section 17, Article 21.28-C, Section 18, Article
21.28-D, or Section 2602.259.
(b) If a domiciliary receiver has been appointed, the
commissioner may initiate an action against a foreign insurer under
Subsection (a)(1) or (a)(2) only with the consent of the
domiciliary receiver.
(c) An order entered pursuant to this section must appoint
the commissioner as conservator. The conservator's title to assets
must be limited to the insurer's property and records located in
this state.
(d) Notwithstanding Section 21A.201(c), the conservator
shall hold and conserve the assets located in this state until the
commissioner in the insurer's domiciliary state is appointed its
receiver or until an order terminating conservation is entered
under Subsection (g). Once a domiciliary receiver is appointed,
the conservator shall turn over to the domiciliary receiver all
property subject to an order under this section.
(e) The conservator may liquidate property of the insurer as
necessary to cover the costs incurred in the initiation or
administration of a proceeding under this section.
(f) The court in which an action under this section is
pending may issue a finding of insolvency or an ancillary
liquidation order. The court may enter an ancillary liquidation
order only for the limited purposes of:
(1) liquidating assets in this state to pay costs
under Subsection (e); or
(2) activating relevant laws applicable to guaranty
associations to pay valid claims that are not being paid by the
insurer.
(g) The conservator may at any time petition the
receivership court for an order terminating an order entered under
this section.
Sec. 21A.402. DOMICILIARY RECEIVERS APPOINTED IN OTHER
STATES. (a) A domiciliary receiver appointed in another state is
vested by operation of law with title to, and may summarily take
possession of, all property and records of the insurer in this
state. Notwithstanding any other provision of law regarding
special deposits, special deposits held in this state shall be,
upon the entry of an order of liquidation with a finding of
insolvency, distributed to the guaranty associations in this state
as early access payments subject to Section 21A.303, in relation to
the lines of business for which the special deposits were made. The
holder of any special deposit shall account to the domiciliary
receiver for all distributions from the special deposit at the time
of the distribution. The statutory provisions of another state and
all orders entered by courts of competent jurisdiction in relation
to the appointment of a domiciliary receiver of an insurer and any
related proceedings in another state must be given full faith and
credit in this state. For purposes of this section, "another state"
means any state other than this state. This state shall treat any
other state than this state as a reciprocal state.
(b) Upon appointment of a domiciliary receiver in another
state, the commissioner shall, unless otherwise agreed by the
receiver, immediately transfer title to and possession of all
property of the insurer under the commissioner's control, including
all statutory general or special deposits, to the receiver.
(c) Except as provided in Subsection (a), the domiciliary
receiver shall handle special deposits and special deposit claims
in accordance with federal law and the statutes pursuant to which
the special deposits are required. All amounts in excess of the
estimated amount necessary to administer the special deposit and
pay the unpaid special deposit claims are deemed general assets of
the estate. If there is a deficiency in any special deposit so that
the claims secured by the special deposit are not fully discharged
from the deposit, the claimants may share in the general assets of
the insurer to the extent of the deficiency at the same priority as
other claimants in their class of priority under Section 21A.301,
but the sharing must be deferred until the other claimants of their
class have been paid percentages of their claims equal to the
percentage paid from the special deposit. The intent of this
provision is to equalize to this extent the advantage gained by the
security provided by the special deposits.
SECTION 2. Section 3(a), Article 21.28-C, Insurance Code,
is amended to read as follows:
(a) This Act applies to all kinds of direct insurance, and
except as provided in Section 12 of this Act, is not applicable to
the following:
(1) life, annuity, health, or disability insurance;
(2) mortgage guaranty, financial guaranty, or other
forms of insurance offering protection against investment risks;
(3) fidelity or surety bonds, or any other bonding
obligations;
(4) credit insurance, vendors' single-interest
insurance, collateral protection insurance, or any similar
insurance protecting the interests of a creditor arising out of a
creditor-debtor transaction;
(5) insurance of warranties or service contracts;
(6) title insurance;
(7) ocean marine insurance;
(8) any transaction or combination of transactions
between a person, including an affiliate of such a person, and an
insurer, including an affiliate of such an insurer, that involves
the transfer of investment or credit risk unaccompanied by the
transfer of insurance risk, including transactions, except for
workers' compensation insurance, involving captive insurers,
policies in which deductible or self-insured retention is
substantially equal in amount to the limit of the liability under
the policy, and transactions in which the insured retains a
substantial portion of the risk; or
(9) any insurance provided by or guaranteed by
government.
SECTION 3. Section 5(8), Article 21.28-C, Insurance Code,
is amended to read as follows:
(8) "Covered claim" means an unpaid claim of an
insured or third-party liability claimant that arises out of and is
within the coverage and not in excess of the applicable limits of an
insurance policy to which this Act applies, issued or assumed
(whereby an assumption certificate is issued to the insured) by an
insurer licensed to do business in this state, if that insurer
becomes an impaired insurer and the third-party claimant or
liability claimant or insured is a resident of this state at the
time of the insured event, or the claim is a first-party claim for
damage to property that is permanently located in this state. A
corporation or other entity that is not an individual is considered
to be a resident of the state in which the entity's principal place
of business is located. "Covered claim" shall also include
unearned premiums, but in no event shall a covered claim for
unearned premiums exceed $25,000. Individual covered claims
(including any and all derivative claims by more than one person
which arise from the same occurrence, which shall be considered
collectively as a single claim under this Act) shall be limited to
$300,000, except that the association shall pay the full amount of
any covered claim arising out of a workers' compensation claim made
under a workers' compensation policy. "Covered claim" shall not
include any amount sought as a return of premium under a
retrospective rating plan or any amount that is directly or
indirectly due any reinsurer, insurer, self-insurer, insurance
pool, or underwriting association, as subrogation recoveries,
reinsurance recoveries, contribution, indemnification, or
otherwise, and the insured of an impaired insurer is not liable, and
the reinsurer, insurer, self-insurer, insurance pool, or
underwriting association is not entitled to sue or continue a suit
against that insured, for any subrogation recovery, reinsurance
recovery, contribution, [or] indemnity, or any other claim asserted
directly or indirectly by a reinsurer, insurer, insurance pool, or
underwriting association to the extent of the applicable liability
limits of the policy written and issued to the insured by the
insolvent insurer. "Covered claim" shall not include supplementary
payment obligations, including adjustment fees and expenses,
attorney's fees and expenses, court costs, interest and penalties,
and interest and bond premiums incurred prior to the determination
that an insurer is an impaired insurer under this Act. "Covered
claim" shall not include any prejudgment or postjudgment interest
that accrues subsequent to the determination that an insurer is an
impaired insurer under this Act. "Covered claim" shall not include
any claim for recovery of punitive, exemplary, extracontractual, or
bad-faith damages, whether sought as a recovery against the
insured, insurer, guaranty association, receiver, special deputy
receiver, or commissioner, awarded in a court judgment against an
insured or insurer. Notwithstanding any other provision of this
Act, the association's liability for shareholder derivative
actions or other claims for economic loss incurred by a claimant in
the claimant's capacity as a shareholder under an insurance policy
placed in force on or after January 1, 1992, is limited to $300,000
for each policy, inclusive of defense costs, regardless of the
number of claimants under each policy. "Covered claim" shall not
include, and the association shall not have any liability to an
insured or third-party liability claimant, for its failure to
settle a liability claim within the limits of a covered claim under
this Act. With respect to a covered claim for unearned premiums,
both persons who were residents of this state at the time the policy
was issued and persons who are residents of this state at the time
the company is found to be an impaired insurer shall be considered
to have covered claims under this Act. If the impaired insurer has
insufficient assets to pay the expenses of administering the
receivership or conservatorship estate, that portion of the
expenses of administration incurred in the processing and payment
of claims against the estate shall also be a covered claim under
this Act.
SECTION 4. Section 8, Article 21.28-C, Insurance Code, is
amended by amending Subsection (d) and adding Subsection (i) to
read as follows:
(d) The association shall investigate and adjust,
compromise, settle, and pay covered claims to the extent of the
association's obligation and deny all other claims. The
association may review settlements, releases, and judgments to
which the impaired insurer or its insureds were parties to
determine the extent to which those settlements, releases, and
judgments may be properly contested. Any judgment taken before the
designation of impairment in which an insured under a liability
policy or the insurer failed to exhaust all appeals, any judgment
taken by default or consent against an insured or the impaired
insurer, and any settlement, release, or judgment entered into by
the insured or the impaired insurer, is not binding on the
association, and may not be considered as evidence of liability or
of damages in connection with any claim brought against the
association or any other party under this Act. Notwithstanding any
other provision of this Act or any other law to the contrary, a
covered claim shall not include any claim filed with the guaranty
association on a date that is later than eighteen months after the
date of the order of liquidation and also shall not include claims
that are unknown and unreported as of the date, provided, however,
[except] that a claim for workers' compensation benefits is
governed by Title 5, Labor Code, and the applicable rules of the
Texas Workers' Compensation Commission.
(i) The association may bring an action against any
third-party administrator, agent, attorney, or other
representative of an insurer for which a receiver has been
appointed to obtain custody and control of all information,
including files, records, and electronic data, related to the
insurer that is appropriate or necessary for the association, or a
similar association in other states, to carry out its duties under
this Act or a similar law of another state. The association has the
absolute right to obtain information under this subsection through
emergency equitable relief, regardless of where the information is
physically located. In bringing an action under this subsection,
the association is not subject to any defense, possessory lien or
other type of lien, or other legal or equitable ground for refusal
to surrender the information that may be asserted against the
receiver of the insurer. The association is entitled to an award of
reasonable attorney's fees and costs incurred by the association in
any action to obtain information under this subsection. The rights
granted to the association under this subsection do not affect the
receiver's title to information, and information obtained under
this subsection remains the property of the receiver while in the
custody of the association.
SECTION 5. Section 10(g), Article 21.28-C, Insurance Code,
is amended to read as follows:
(g) Venue in a suit by or against the association or
commissioner relating to any action or ruling of the association or
commissioner made under this Act is in Travis County. The
association or commissioner is not required to give an appeal bond
in an appeal of a cause of action arising under this Act.
SECTION 6. Section 11(b), Article 21.28-C, Insurance Code,
is amended to read as follows:
(b) The association is entitled to recover [from the
following persons the amount of any covered claim and costs of
defense paid on behalf of that person under this Act]:
(1) the amount of any covered claim for workers'
compensation insurance benefits and the costs of administration and
defense of those claims paid under this Act from any insured
employer, other than an insured who is exempt from federal income
tax under Section 501(a) of the Internal Revenue Code of 1986 (26
U.S.C. Section 501(a)) by being described by Section 501(c)(3) of
that code, whose net worth on December 31 of the year next preceding
the date the insurer becomes an impaired insurer exceeds $50
million, provided that an insured's net worth on that date shall be
deemed [is considered] to include the aggregate net worth of the
insured and all of the insured's parent, subsidiary, and affiliated
companies as computed on a consolidated basis[, and whose
obligations under a liability policy or contract of insurance
written, issued, and placed in force after January 1, 1992, are
satisfied in whole or in part by payments made under this Act]; and
(2) the amount of any covered claim and the costs of
defense paid on behalf of any person who is an affiliate of the
impaired insurer and whose liability obligations to other persons
are satisfied in whole or in part by payments made under this Act.
SECTION 7. Section 11A, Article 21.28-C, Insurance Code, is
amended to read as follows:
Sec. 11A. NET WORTH EXCLUSION. (a) Except for a workers'
compensation claim governed by Title 5, Labor Code, a covered claim
does not include and the association is not liable for any claim
arising from a policy of insurance of any [The association is not
liable to pay a first-party claim of an] insured whose net worth on
December 31 of the year next preceding the date the insurer becomes
an impaired insurer exceeds $50 million.
(b) The net worth of an insured for purposes of this section
includes the aggregate net worth of the insured and all of the
insured's parent, subsidiary, and affiliated companies computed on
a consolidated basis.
(c) This section does not apply:
(1) to third-party claims against an insured that has:
(A) applied for or consented to the appointment
of a receiver, trustee, or liquidator for all or a substantial part
of the insurer's assets;
(B) filed a voluntary petition in bankruptcy; or
(C) filed a petition or an answer seeking a
reorganization or arrangement with creditors or to take advantage
of any insolvency law; or
(2) if an order, judgment, or decree is entered by a
court of competent jurisdiction, on the application of a creditor,
adjudicating the insured bankrupt or insolvent or approving a
petition seeking reorganization of the insured or of all or a
substantial part of its assets.
(d) In an instance described by Subsection (c) of this
section, the association is entitled to assert a claim in the
bankruptcy or receivership proceeding to recover the amount of any
covered claim and costs of defense paid on behalf of the insured
[This section does not exclude the payment of a covered claim for
workers' compensation benefits otherwise payable under this Act].
(e) The association may establish procedures for requesting
financial information from an insured or claimant on a confidential
basis for the purpose of applying sections concerning the net worth
of first-party and third-party claimants, subject to any
information requested under this subsection being shared with any
other association similar to the association and with the
liquidator for the impaired insurer on the same confidential basis.
If the insured or claimant refuses to provide the requested
financial information, the association requests an auditor's
certification of that information, and the auditor's certification
is available but not provided, the association may deem the net
worth of the insured or claimant to be in excess of $50 million at
the relevant time.
(f) In any lawsuit contesting the applicability of Section
11(b) of this article or this section when the insured or claimant
has declined to provide financial information under the procedure
provided in the plan of operation pursuant to Section 9 of this
article, the insured or claimant bears the burden of proof
concerning its net worth at the relevant time. If the insured or
claimant fails to prove that its net worth at the relevant time was
less than the applicable amount, the court shall award the
association its full costs, expenses, and reasonable attorney's
fees in contesting the claim.
SECTION 8. Section 17(a), Article 21.28-C, Insurance Code,
is amended to read as follows:
(a) All proceedings in which an impaired insurer is a party
or is obligated to defend a party in any court in this state, except
proceedings directly related to the receivership or instituted by
the receiver, shall be stayed as to all parties and for all purposes
for six months and any additional time thereafter as may be
determined by the court from the date of the designation of
impairment or an ancillary proceeding is instituted in the state,
whichever is later, to permit proper defense by the association of
all pending causes of action. A deadline imposed under the Texas
Rules of Civil Procedure or the Texas Rules of Appellate Procedure
is tolled during the stay. Statutes of limitation or repose are not
tolled during the stay, and any action filed during the stay is
stayed upon the filing of the action. The court in which the
delinquency proceeding is pending has exclusive jurisdiction
regarding the application, enforcement, and extension of the stay
and may issue injunctions or other similar orders to enforce the
stay. If the impaired insurer is not domiciled in this state, the
commissioner may bring an ancillary conservation [delinquency]
proceeding under Section 21A.401 [13, Article 21.28] of this code,
for the [limited] purpose of determining the application,
enforcement, and extension of the stay.
SECTION 9. Article 21.28, Insurance Code, is repealed.
SECTION 10. (a) The changes in law made by this Act apply
only to a receivership proceeding brought against an insurer under
Section 2, Article 21.28, Insurance Code, that is pending on the
effective date of this Act and to a receivership proceeding
initiated on or after the effective date of this Act. A
receivership proceeding that has terminated before the effective
date of this Act is governed by the law in effect at the time the
receivership proceeding terminated, and that law is continued in
effect for that purpose.
(b) Except as provided by Subsection (a) of this section,
the changes in law made by this Act apply only to a proceeding or
cause of action brought under Chapter 21A, Insurance Code, as added
by this Act, that is filed or commenced on or after the effective
date of this Act. A proceeding or cause of action brought under
Article 21.28, Insurance Code, as it existed before its repeal by
this Act, other than a receivership proceeding brought against an
insurer, that was filed or commenced before the effective date of
this Act is governed by the law in effect at the time the proceeding
or cause of action was filed or commenced, and that law is continued
in effect for that purpose.
SECTION 11. This Act takes effect September 1, 2005.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 2157 was passed by the House on May
13, 2005, by a non-record vote; and that the House concurred in
Senate amendments to H.B. No. 2157 on May 27, 2005, by a non-record
vote; and that the House adopted H.C.R. No. 234 authorizing certain
corrections in H.B. No. 2157 on May 30, 2005, by a non-record vote.
______________________________
Chief Clerk of the House
I certify that H.B. No. 2157 was passed by the Senate, with
amendments, on May 25, 2005, by the following vote: Yeas 31, Nays
0; and that the Senate adopted H.C.R. No. 234 authorizing certain
corrections in H.B. No. 2157 on May 30, 2005, by a viva-voce vote.
______________________________
Secretary of the Senate
APPROVED: __________________
Date
__________________
Governor