79R3229 KCR-F
By: Smithee H.B. No. 2157
A BILL TO BE ENTITLED
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 the law.
(c) This chapter shall be liberally construed to effect 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 the 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, with
minimum interference with the normal prerogatives of the owners and
managers of insurers, through:
(1) early detection of any potentially hazardous
condition in an insurer and prompt application of appropriate
corrective measures;
(2) improved methods for rehabilitating insurers,
involving the cooperation and management expertise of the insurance
industry;
(3) enhanced efficiency and economy of liquidation,
through clarification of the law, to minimize legal uncertainty and
litigation;
(4) equitable apportionment of any unavoidable loss;
(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. PERSONS COVERED. (a) 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 an
insurance business in this state;
(5) nonprofit health corporations and all fraternal
benefit societies and beneficial societies subject to Chapters 844
and 885, respectively;
(6) title insurance companies subject to Title 11;
(7) prepaid health care delivery plans, including
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 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.
(b) For purposes of this chapter, all persons,
corporations, associations, or entities to which this chapter
applies and that are subject to delinquency proceedings commenced
in this state are "insurers."
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" means a person having any claim against
an insurer subject to a delinquency proceeding, whether matured or
unmatured, 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 summary
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 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
liquidation or rehabilitation proceeding.
(9) "General assets" includes all property that is not
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 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. The term also includes all property or its proceeds in
excess of the amount necessary to discharge any secured claims
against the property or special deposit claims.
(10) "Good faith" means honesty in fact and intention,
together with 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 receivership proceeding against the insurer.
(11) "Guaranty association" means any mechanism
mandated by state statute 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:
(A) is not possessed of admitted assets at least
equal to all its liabilities together with the minimum surplus
required to be maintained under this code; or
(B) has a risk-based capital less than or equal
to the authorized control level.
(13) "Insolvency" or "insolvent" means an insurer is:
(A) unable to pay its obligations when they are
due; or
(B) not possessed of admitted assets at least
equal to all its liabilities.
(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) "Liabilities" means all liabilities required to
be reported in financial statements filed with the department.
(16) "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.
(17) "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.
(18) "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
where the insurer has outstanding claims liabilities, and any of
the following parties that have filed a request for inclusion on the
service list:
(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.
(19) "Person" means individual, aggregation of
individuals, partnership, corporation, or other entity.
(20) "Policy" means a written contract of insurance,
written agreement for or effecting insurance, or the certificate
for or effecting insurance, by whatever name called. 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.
(21) "Property of the insurer" or "property of the
estate" includes:
(A) all right, title, and interest of the
insurer, 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 conservation, 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, 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
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.
(22) "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.
(23) "Receiver" means liquidator, rehabilitator,
conservator, or ancillary receiver, as the context requires.
(24) "Receivership" means any liquidation,
rehabilitation, conservation, or ancillary receivership, as the
context requires.
(25) "Receivership court" refers to the court in which
a receivership proceeding is pending, unless the context requires
otherwise.
(26) "Reinsurance" means transactions whereby 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.
(27) "Secured claim" means any claim secured by an
asset that is not a general asset. The right to set off as provided
in Section 21A.210 is a secured claim. 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.
(28) "Special deposit" means a deposit established
pursuant to statute for the security or benefit of a limited class
or classes of persons.
(29) "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.
(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 to 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 Subsection (a)(22):
(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 of the 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 6c(b) of the 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 of the
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 include mortgage–related securities, a
mortgage loan, and an interest in a mortgage loan and 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 of agreements and an option to
enter into an agreement.
Sec. 21A.005. JURISDICTION AND VENUE. (a) No delinquency
proceeding may be commenced under this chapter by a person other
than the commissioner, and no court has jurisdiction to entertain,
hear, or determine any 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, 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
receivership 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 receivership 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 an arbitration under this subsection may
bring a counterclaim against the estate, but the counterclaim is
subject to Section 21A.210.
(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 brought under this chapter 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(k).
(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 receivership proceeding
under this chapter except to the extent that the guaranty
association has otherwise expressly consented to the jurisdiction
of the receivership court pursuant to a plan of rehabilitation or
liquidation that resolves its obligations to covered
policyholders. 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 receivership proceeding initiated in the
receivership court, including the policyholders of the insurer.
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 pertaining
to the exercise by the department of any power or duty conferred on
the department under this chapter, regardless of whether the paper
or instrument is executed by the receiver or the receiver's
employees or attorneys of record and whether the document is
connected with the commencement or conduct of any action or
proceeding by or against the receiver.
Sec. 21A.007. NOTICE AND HEARING ON MATTERS SUBMITTED BY
THE 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 their 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 receivership
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 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. Notice is deemed to be given on the date that it is
deposited with the U.S. Postmaster or transmitted, as applicable.
(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 time 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 time 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, filed merely for delay, or for other
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 is necessary or
appropriate to carry out the provisions of this chapter or an
approved 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 in Subsections (e) and (f) or as
otherwise provided in this chapter and subject to Subsection (g),
the commencement of a receivership 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
arbitration proceedings, that was or could have been commenced
before the commencement of the receivership proceeding under this
chapter, or to recover a claim against the insurer that arose before
the commencement of the receivership 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 receivership 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
receivership 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) 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 Subsections (e) and (f) or as
otherwise provided in this chapter, the commencement of a
receivership proceeding under this chapter operates as a stay,
applicable to all persons, of the commencement or continuation,
including the issuance or employment of process, of a 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 receivership
proceeding under this chapter, or to recover a claim against the
insured that arose before or after the commencement of the
receivership 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. Any
applicable statute of limitation with respect to any claim against
an insured is tolled during the period of the stay and any
extensions provided under this subsection.
(e) Notwithstanding Subsections (c) and (d), the
commencement of a receivership proceeding under this chapter does
not operate as a stay of:
(1) except as provided by Subsection (c)(7),
regulatory actions by the commissioners of non-domiciliary 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) setoff as permitted by Section 21A.210 of this
code;
(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 the guaranty association of statutory
responsibilities under, or the pursuit of claims against guaranty
associations to the extent permitted by, 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 in Subsection (h) of this section:
(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 receivership proceeding
is closed or dismissed.
(g) Notwithstanding the provisions of Subsection (c),
claims against the insurer that arose before the commencement of
the receivership 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; 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
plan.
(i) In any hearing under Subsection (h) of this section, the
party seeking relief from the stay has the burden of proof on each
issue, which must be established by clear and convincing evidence.
(j) 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.
(k) 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
the rehabilitation or liquidation of an insurer if the association
is or may become liable to act as a result of the rehabilitation or
liquidation. 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.
(l) 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 in 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 pursuant to this section with respect to the claim.
(d) 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, if the otherwise applicable
limitations period has not expired prior to the initial filing of
the petition in a delinquency proceeding, 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) 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 included within 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 insurance 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.
[Section 21A.011 reserved for expansion]
Sec. 21A.012. ACTIONS BY AND AGAINST THE 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 the insurer's
management 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. Evidence of fraud in the inducement is admissible only
if contained in the records of the insurer.
(c) An action or inaction by the department 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 quantum 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.013. IMMUNITY AND INDEMNIFICATION OF THE RECEIVER
AND ASSISTANTS. (a) For the purposes of this section, the persons
entitled to immunity or indemnification under this section, 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, as described in Subsection (a), have
immunity under this chapter, as described by Subsections (c) and
(d).
(c) The receiver, the receiver's assistants, and the
receiver's contractors have official immunity and are immune from
suit and liability, both personally and in their official
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 arising out of or by reason of their duties
or employment. Nothing in this provision shall be construed to hold
the receiver or any assistant or contractor immune from suit or
liability for any damage, loss, injury, or liability caused by the
intentional or wilful and wanton misconduct of the receiver, any
assistant, or contractor.
(d) In addition to the immunity described by Subsection (c),
the receiver, the receiver's assistants, and the receiver's
contractors have absolute judicial immunity and are immune from
suit and liability, both personally and in their official
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,
assistant, or contractor arising out of or by reason of any matters
that have been subject to review by the receivership court after
notice and opportunity to be heard, provided that the alleged act,
error, or omission was not disapproved or disallowed by the
receivership court.
(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 such 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 any defense otherwise available.
(n) The immunity and indemnification provided to special
deputies, assistant special deputies, and 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) No legal action shall lie against the receiver or any
assistant based in whole or in part on any alleged act, error, or
omission that took place prior to September 1, 2005, unless suit is
filed and valid service of process is obtained not later than August
31, 2006.
(q) Subsections (e)-(l) of this section 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.014. 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. The receiver is
not required to pay any such expenses that the receiver determines
are not necessary, and may reject any contract pursuant to Section
21A.155.
(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 any special deputies
or contractors with respect to which the total amount of the
compensation is reasonably expected by the receiver 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 in Subsection (c)(1).
(e) The receiver may pay any expenses not requiring
receivership court approval and any expenses approved in the
rehabilitation or liquidation order.
(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 an annual or more frequent basis, the receiver shall
submit to the receivership court a report summarizing the expenses
incurred in the prior 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 in 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.305. Any amounts advanced shall be repaid to the
account out of the first available money of the insurer.
Sec. 21A.015. 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 annually thereafter, the receiver
shall comply with all requirements for receivership financial
reporting as specified by the National Association of Insurance
Commissioners.
(b) Not later than the 120th day after the date of entry of
an order of liquidation by the receivership court, and at least
quarterly thereafter, 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.
Sec. 21A.016. RECORDS. (a) Upon entry of an order of
rehabilitation or liquidation, the receiver is vested with title to
all of the books, documents, papers, and other records of the
insurer, wherever located. 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.
(b) The receiver has the authority to certify the records of
a delinquent insurer described in 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 these records.
[Sections 21A.017-21A.050 reserved for expansion]
SUBCHAPTER B. PROCEEDINGS PRIOR TO RECEIVERSHIP ORDER
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 a domestic insurer or an unauthorized
insurer:
(1) alleging that there exist grounds that would
justify a court order for a formal delinquency proceeding against
an 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 a
misdemeanor punishable by a fine not to exceed $1,000 or
imprisonment not to exceed one year, or both fine and imprisonment.
(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 by
law. The commissioner shall provide only the notice as the
receivership court may require.
(d) The receivership court shall specify in the seizure
order what its duration is, which shall be a time 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
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
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
in 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.
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. Not later than the 10th day after the date of 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 commissioners in states where 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 by
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 no temporary restraining order is 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,
without a jury and without unnecessary delays, shall proceed to
hear the case on the petition to commence a formal delinquency
proceeding at the time and date set forth for trial. 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 person or an
affiliate;
(2) examination reports of the person or an affiliate
made by or on behalf of the commissioner; and
(3) any other document filed with any insurance
department by the person 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) In all proceedings and
judicial reviews under Section 21A.051, 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.
(b) The commissioner, conservator, or rehabilitator may
share documents, materials, or other information in the possession,
custody, or control of the department 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 of the documents, material, or other
information. Nothing in this section limits the power of the
commissioner to disclose information under other applicable law.
(c) A domiciliary receiver shall permit a commissioner of
another state or 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 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.
(d) The confidentiality obligations imposed by this section
end upon the entry of an order of liquidation with a finding of
insolvency 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 petition to the court for an
order authorizing the commissioner to conserve, rehabilitate, or
liquidate a domestic insurer, an alien insurer domiciled in this
state, or an unauthorized insurer 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, "about
to become insolvent" being defined as reasonably anticipated that
the insurer will not have liquid assets to meet its next 90 days of
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 21.28A, 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 in
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
conservation, rehabilitation, or liquidation requested in the
petition.
[Sections 21A.059-21A.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
under the general supervision of the receivership court. 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 have imparted. 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) 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.
(d) 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.
(e) Unless otherwise directed by the receivership court,
the rehabilitator shall, not later than the fifth day after the date
of entry of an order of rehabilitation, give or cause to be given
notice of the order of rehabilitation by first class mail or
electronic communication to the guaranty associations of this state
and any other guaranty association that has or may have obligations
as a result of the receivership proceeding.
Sec. 21A.102. POWERS AND DUTIES OF THE REHABILITATOR. (a)
The commissioner as rehabilitator may appoint one or more special
deputies, who have all the powers and responsibilities of the
rehabilitator granted under this section. The rehabilitator may
employ or contract with legal counsel, actuaries, accountants,
appraisers, consultants, clerks, assistants, and other personnel
as deemed necessary. Any special deputy or other person with whom
the rehabilitator contracts under this subsection is considered an
agent of the commissioner only in the commissioner's capacity as
rehabilitator, and is not considered an agent of 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.014, 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 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. 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 pursuant to Sections
21A.051 or 21A.057 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. FILING OF 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. In the case of a life
insurer, if all rights of shareholders are relinquished, the
proposed plan may include the imposition of liens upon the policies
of the company. A plan for a life insurer may also 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
covered or not covered by guaranty associations;
(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 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 possession of its property and the control of the business.
Sec. 21A.105. ORDERLY TRANSITION TO LIQUIDATION. (a) Upon
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 ensure that an orderly transition to liquidation
occurs, 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 where 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 where the
insurer is or was licensed and time 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 their statutory duties.
(d) In the case of a property and casualty insurer, the
conservator or 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.
[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 under the general supervision of the receivership
court. 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 have imparted.
(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 in 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 person 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 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 on which 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 in Subsection (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 released or discharged by a cancellation under this section.
Sec. 21A.153. SALE OR DISSOLUTION OF THE INSURER'S
CORPORATE ENTITY. (a) 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 assets the liquidator deems 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 then 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 THE 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 is considered to be an agent of the commissioner only
in the commissioner's capacity as liquidator, and is not considered
to be an agent of 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.
(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.014.
(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 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
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 subdivision, 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 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, to:
(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, compound, 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 policy obligations to
a solvent assuming insurer, if the transfer can be arranged without
prejudice to applicable priorities under Section 21A.301.
(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 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.155, 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 any or all 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 sums that are required for meeting current administration
expenses and dividend distributions.
(p) The liquidator may invest all sums 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 pursuant to Section 21A.051
or 21A.057 has been filed 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 and may
defend only in cooperation with the guaranty association or in the
absence of the defense.
(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 given 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 now held or
hereafter conferred upon receivers by the laws of this state not
inconsistent with the provisions of 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, as may be 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 $1,000,000 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 in Section
21A.007;
(3) the liquidator may, at the liquidator's
discretion, request the receivership court to approve a proposed
action as provided in Section 21A.007 if the value of the property
or claim appears to be less than the threshold provided in
Subdivision (1) but cannot be ascertained with certainty, or for
any other reason as determined by the liquidator; and
(4) the liquidator may, subject to Subsection (e),
transfer rights to payment under ceding reinsurance agreements
covering policies to a third-party transferee after obtaining
approval of the receivership court as provided in Section 21A.007.
(z) The transferee of a right to payment under Subsection
(d)(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.212(c). 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 (d)(4) does not impair any rights or
defenses of the reinsurer that existed prior to the transfer or
would have existed in the absence of the transfer. Except as
otherwise provided in this subsection, any transfer of rights
pursuant to Subsection (d)(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. EXECUTORY CONTRACTS. (a) The liquidator may
assume or reject any executory contract or unexpired lease of the
insurer.
(b) Neither the filing of a petition under this chapter nor
the entry of an order of seizure, rehabilitation, or liquidation
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 liquidator may not assume the
contract or lease unless, at the time of the assumption of the
contract or lease, the liquidator:
(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 receivership
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 receivership 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.
Sec. 21A.156. 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, including all
policyholders and reinsurers, 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) When the commissioner is appointed liquidator for an
insurer domiciled in another state, the notice of the liquidation
order given by the domiciliary liquidator in compliance with the
laws of that state is sufficient notice, and the ancillary receiver
shall not be required to give any notice unless the domiciliary
liquidator fails to give notice. The ancillary receiver may
request that the domiciliary liquidator's notice to potential
policyholder claimants mention the existence of any applicable
guaranty association laws in this state. If notice by the
domiciliary liquidator in another state does not mention the
existence of guaranty association laws in this state, the ancillary
receiver may arrange to give notice to those who may have rights
under applicable guaranty association laws in this state, together
with a citation to the guaranty association statute in this state.
(c) 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.
(d) 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.
(e) 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 company'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 as provided for in Subsection (b) is
prima facie evidence of mailing and receipt. All claimants shall
keep the liquidator informed of any changes of address.
(f) Upon application of the liquidator and for good cause
shown, 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.
Sec. 21A.157. DUTIES OF AGENTS. (a) Every person who
represented the insurer as an agent and receives notice in the form
prescribed in Section 21A.156 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, if the agent
is a general agent, the information in the general agent's records
related to any policy issued by the insurer through an agent under
contract to the general agent, including the name and address of the
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 a penalty of not more than $1,000, and the agent's license may be
suspended after a hearing held by the commissioner.
[Sections 21A.158-21A.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 the 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 in 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
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.
(e) If the receiver is successful in establishing the
receiver's claim to the funds or property or any part of the funds
or property, the receiver is entitled to recover judgment for the
following:
(1) at the election of the receiver, the property or
its cash value as of the date of the initial order of receivership;
(2) rental for the use of tangible property from the
date of the order of receivership to the date the property is
delivered to the receiver;
(3) in the case of funds or intangible property, the
greater of the actual interest or income earned by the funds or
property or interest at the statutory rate for judgments from the
date of the order of receivership to the date the funds are
delivered or the intangible property is transferred to the
receiver; and
(4) 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.
Sec. 21A.202. RECOVERY FROM AFFILIATES. (a) The receiver
has a right to recover from any affiliate of the insurer any asset
transferred to or for the benefit of the affiliate, or the asset's
value, if the transfer was made within the five 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 statutory writing
ratios; or
(B) cause the insurer's filed financial
statements not to fairly present the capital and surplus of the
insurer.
(c) If the receiver is successful in establishing the
receiver's claim or any part of the claim, the receiver is entitled
to recover judgment for the following:
(1) at the election of the receiver, the property or
its cash value as of the date of the initial order of receivership;
(2) rental for the use of tangible property from the
date of the order of receivership to the date the property is
delivered to the receiver;
(3) in the case of funds or intangible property, the
greater of the actual interest or income earned by the funds or
property or interest at the statutory rate for judgments from the
date of the order of receivership to the date the funds are
delivered or the intangible property is transferred to the
receiver; and
(4) all costs, including investigative costs and other
expenses necessary to the recovery of the property or funds, and
reasonable attorney fees.
Sec. 21A.203. 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, were 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 affected by this
section.
Sec. 21A.204. UNAUTHORIZED POST-PETITION TRANSFERS. (a)
After a petition for receivership has been filed, a transfer of an
interest in property of an insurer made to a person acting in good
faith is valid against the receiver to the extent of the new value
given for the property, for which amount the transferee shall have a
lien on the transferred property.
(b) After a petition for receivership has been filed, a
person indebted to the insurer or holding property of the insurer
may, if acting in good faith, pay the indebtedness or deliver the
property, or any part of the indebtedness or property, to the
insurer or upon the insurer's order, with the same effect as if the
petition were not pending.
(c) A person asserting the validity of a transfer under this
section has the burden of proof.
(d) Except as provided in this section, a transfer by or on
behalf of the insurer after the date of the petition for
receivership by any person other than the receiver is not valid
against the receiver.
(e) If the receiver is successful in establishing the
receiver's claim or any part of the claim, the receiver is entitled
to recover judgment from each person receiving any property or
funds from the insurer or any benefit of the property or funds for
the following:
(1) at the election of the receiver, the property or
its cash value as of the date of the transfer;
(2) rental for the use of tangible property from the
date of the transfer to the date the property is delivered to the
receiver;
(3) in the case of funds or intangible property, the
greater of the actual interest or income earned by the property or
interest at the statutory rate for judgments from the date of the
transfer to the date the funds are delivered to the receiver; and
(4) all costs, including investigative costs and other
expenses necessary to the recovery of the property or funds, and
reasonable attorney fees.
Sec. 21A.205. 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 for receivership under this chapter; 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 were
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;
(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 of the insurer and the transferee or 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 when it 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 which 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 of the successful petition.
(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 upon 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)(2)
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 under this chapter that
results in a receivership order, the indemnifying transfer or lien
is also deemed voidable.
(2) The property affected by any lien deemed voidable
under this section 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,
and if the value is less than the amount for which the property is
indemnity or than the amount of the lien, the transferee or
lienholder may elect to retain the property or lien upon payment of
its value, as ascertained by the receivership court, to the
receiver, within a reasonable time set by the receivership court.
(4) The liability of the surety under a releasing bond
or other like 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 to the extent of the amount paid to the receiver.
(j) If the receiver is successful in establishing the
receiver's claim or any part of the claim, the receiver is entitled
to recover judgment for the following:
(1) at the election of the receiver, the property or
its cash value as of the date of the demand by the receiver;
(2) rental for the use of tangible property from the
date of the demand by the receiver to the date the property is
delivered to the receiver;
(3) in the case of funds or intangible property, the
greater of the actual interest or income earned by the property or
interest at the statutory rate for judgments from the date of the
demand by the receiver to the date the funds are delivered to the
receiver; and
(4) all costs, including investigative costs and other
expenses necessary to the recovery of the property or funds, and
reasonable attorney's fees.
(k) This section may not be construed to prejudice any other
claim by the receiver against any person.
(l) The receiver has the burden of proving the avoidability
of a transfer under Subsection (b), and the person against whom
recovery or avoidance is sought has the burden of proving the
nonavoidability of a transfer under Subsection (c).
Sec. 21A.206. 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 filing of a petition for receivership
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. 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 receivership proceeding, the transfer is made
immediately before the date of the filing of the petition.
(c) For purposes of this section, "value" means property or
satisfaction or securing of a present or antecedent debt of the
insurer.
(d) The receiver has the burden of proving the avoidability
of a transfer under Subsection (a), and the person asserting a lien
under Subsection (b) has the burden of proving entitlement to the
lien.
Sec. 21A.207. 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.208. EFFECT OF AVOIDANCE OF TRANSFERS. (a) Except
as otherwise provided in this section, to the extent that a transfer
is avoided under Sections 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.
Sec. 21A.209. 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
liquidator 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.210. SETOFFS. (a) 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 the balance only may be allowed or
paid, except as provided by Subsection (b) and Section 21A.214.
(b) A setoff may not be allowed after the commencement of a
delinquency proceeding under this chapter in favor of any person
if:
(1) the obligation of the insurer to the person:
(A) would not, at the date of the filing of a
petition for liquidation, entitle the person to a distribution of
the property of the insurer; or
(B) was purchased by or transferred to the person
with a view to its being used as a setoff;
(2) the obligation of the insurer is owed to an
affiliate of the person, or any other entity or association other
than the person; or
(3) the obligation of the person:
(A) is owed to an affiliate of the insurer, or any
other entity or association other than the insurer;
(B) is to pay an assessment levied against the
members or subscribers of the insurer or a balance upon a
subscription to the capital stock of the insurer or is in any other
way in the nature of a capital contribution; or
(C) arises out of any avoidance action taken by
the receiver; or
(4) the obligations between the person and the insurer
arise out of transactions by 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) Notwithstanding the provisions of Subsection (b), the
receiver may permit setoffs if in the receiver's discretion a
setoff is appropriate because of specific circumstances relating to
a transaction.
(d) The receiver may avoid pursuant to Sections 21A.202,
21A.203, and 21A.206 any setoff that occurred prior to the
commencement of a delinquency proceeding under this chapter in
which:
(1) the obligation of the insurer to the person:
(A) would not, at the date of the filing of a
petition for liquidation, entitle the person to a distribution of
the property of the insurer; or
(B) was purchased by or transferred to the person
with a view to its being used as a setoff;
(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 owed to an affiliate of the insurer, or any
other entity or association other than the insurer; or
(B) is to pay an assessment levied against the
members or subscribers of the insurer or a balance upon a
subscription to the capital stock of the insurer or is in any other
way in the nature of a capital contribution;
(4) the obligations between the person and the insurer
arise out of transactions by 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, unless the regulatory authority approved the
transactions; or
(5) the setoff was not recorded in the books and
records of the person and the insurer at or about the time the
setoff was taken, or, if required by statutory accounting practices
and procedures, was not timely reported on the person's and the
insurer's official financial statements filed with the department.
(e) The person against whom the receiver seeks to preclude
or avoid a setoff has the burden of proof that the setoff is of the
type described in Subsections (b)(1)-(4) or is not of the type
described in Subsections (d)(1)-(5), as the case may be.
Sec. 21A.211. ASSESSMENTS. (a) As soon as practicable, but
not later than the fourth anniversary of the date of an order of
liquidation of an insurer issuing assessable policies, the
liquidator 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
liquidator, 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 pursuant to 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.301.
Sec. 21A.212. REINSURER'S LIABILITY. (a) The amount
recoverable by the liquidator from reinsurers may not be reduced as
a result of the delinquency proceedings, regardless of any
provision in the reinsurance contract or any other agreement.
(b) If an insurer takes credit for a reinsurance contract in
any filing or submission made to the commissioner, that reinsurance
contract is deemed to contain the provisions required with respect
to the obligations of reinsurers in the event of insolvency of the
reinsured in order to obtain credit for reinsurance or under other
applicable statutes.
(c) All reinsurance contracts to which an insurer is a party
that contain the provisions required to obtain credit for
reinsurance or under other applicable statutes, and all reinsurance
contracts which are presumed or construed to contain provisions
pursuant to Subsection (b), must be construed to contain the
following provision: "In the event of insolvency and the
appointment of a receiver, the reinsurance obligation shall be
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. Payment shall be made upon either:
(1) proof of payment of the insured claim by a guaranty
association to the extent of the payment; or
(2) the allowance of the claim pursuant to Section
21A.258 of the Insurer Receivership Act."
(d) The receiver of a reinsured company shall give written
notice of the pendency of a claim against the reinsured company in
accordance with the terms of the contract. Failure of a reinsured
company to give notice of a pending claim pursuant to a provision in
the reinsurance contract does not excuse the obligation of the
reinsurer unless it is prejudiced by the failure, and if it is
prejudiced, its obligations shall be reduced only to the extent of
the prejudice. The reinsurer may interpose, at its own expense, in
the proceeding where the claim is to be adjudicated, any defense or
defenses that it may deem available to the reinsured company or its
receiver.
(e) The entry of an order of conservation, rehabilitation,
or liquidation may not be deemed a breach or an anticipatory breach
of any reinsurance contract, nor shall it be grounds for
retroactive revocation or retroactive cancellation of any
reinsurance contracts by the reinsurer.
(f) If reinsurance payments to a receiver of a ceding
insurer are later determined to be payments in excess of the amounts
actually due to the receiver, the excess must be credited against
future payments due to the receiver or must be repaid to the
reinsurer as an administrative expense of the estate pursuant to
Section 21A.301(a). Any such repayment may be limited based on the
property remaining in the estate.
(g) Payments by the reinsurer must be made directly to the
ceding insurer or its receiver, except if:
(1) the reinsurance contract or other written
agreement to which the insured, ceding insurer, and reinsurer are
all parties specifically provides another payee, other than an
affiliate of the ceding insurer or reinsurer, of the reinsurance in
the event of the insolvency or receivership of the ceding insurer;
(2) the assuming insurer, with the consent of the
direct insured and the ceding insurer, has assumed the policy
obligations of the ceding insurer as direct obligations of the
assuming insurer to the payees under the policies and in
substitution for the entire obligations of the ceding insurer to
the payees;
(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 Section 21A.213 or the life and health guaranty association
laws of its domiciliary state, or pursuant to other applicable law,
rule, order or assignment contract, in which case payments must be
made directly to or at the direction of the guaranty association; or
(4) with the approval of the receivership court
pursuant to Section 21A.007, the receiver directs payment to
another party.
(h) For purposes of Subsection (g), both the receiver and
the reinsurer are entitled to recover from any person, other than
the receiver or a guaranty association, who unsuccessfully makes a
claim directly against the reinsurer the receiver's and reinsurer's
attorney's fees and expenses incurred in preventing any collection
by the person.
(i) This chapter may not be construed to authorize the
liquidator or any other entity to compel payment from a non-life
reinsurer on the basis of estimated incurred but not reported
losses or loss expenses or case reserves for unpaid losses and loss
expenses, except with respect to case reserves for unpaid losses
and loss expenses allowed pursuant to Section 21A.255. The
obligation of reinsurers to make payments to the insurer must be
determined on the basis of reported claims that have been allowed
pursuant to Section 21A.258 or upon proof of payment of the insured
claim by a guaranty association, to the extent of that payment.
Likewise, this chapter may not be construed to authorize the
liquidator or any other entity to compel payment from a life
reinsurer on the basis of valuation reserves as established
pursuant to this state's Standard Valuation Law.
Sec. 21A.213. LIFE AND HEALTH REINSURANCE. (a) Except as
provided by this subsection, at any time within one year after the
coverage date, meaning the date on which any life or health guaranty
association becomes responsible for the obligations of a member
insurer, the guaranty association may elect to succeed to the
rights and obligations of the member insurer that accrue on or after
the coverage date and that relate to contracts covered, in whole or
in part, by the guaranty association, under any one or more
indemnity reinsurance agreements entered into by the member insurer
as a ceding insurer and selected by the guaranty association. The
guaranty association may not exercise this election with respect to
a reinsurance agreement if the receiver of the member insurer has
previously and expressly rejected the reinsurance agreement. The
election must be effected by a notice to the receiver and to the
affected reinsurers. If the guaranty association makes an
election, the following provisions apply with respect to the
agreements selected by the guaranty association:
(1) The guaranty association is responsible for all
unpaid premiums due under the agreements, for periods both before
and after the coverage date, and is responsible for the performance
of all other obligations to be performed after the coverage date, in
each case which relates to contracts covered, in whole or in part,
by the guaranty association. The guaranty association may charge
contracts covered in part by the guaranty association, through
reasonable allocation methods, the costs for reinsurance in excess
of the obligations of the guaranty association.
(2) The guaranty association is entitled to any
amounts payable by the reinsurer under the agreements with respect
to losses or events that occur in periods after the coverage date
and that relate to contracts covered, in whole or in part, by the
guaranty association, provided that, upon receipt of any such
amounts, the guaranty association shall pay to the beneficiary
under the policy or contract on account of which the amounts were
paid a portion of the amount equal to the excess of (i) the amount
received by the guaranty association, over (ii) the benefits paid
by the guaranty association on account of the policy or contract
less the retention of the impaired or insolvent member insurer
applicable to the loss or event.
(3) Within 30 days following the guaranty
association's election, the guaranty association and each
indemnity reinsurer shall calculate the net balance due to or from
the guaranty association under each reinsurance agreement as of the
date of the guaranty association's election, which calculation must
give full credit to all items paid by either the member insurer or
its receiver or the indemnity reinsurer during the period between
the coverage date and the date of the guaranty association's
election. Either the guaranty association or indemnity reinsurer
shall pay the net balance due the other not later than the fifth day
after the date of the completion of the calculation under this
subdivision. If the receiver, rehabilitator, or liquidator has
received any amounts due the guaranty association pursuant to
Subdivision (2), the receiver shall remit those amounts to the
guaranty association as promptly as practicable.
(4) If the guaranty association, within 60 days of the
election, pays the premiums due for periods both before and after
the coverage date that relate to contracts covered, in whole or in
part, by the guaranty association, the reinsurer is not entitled to
terminate the reinsurance agreements, insofar as the agreements
relate to contracts covered, in whole or in part, by the guaranty
association and is not entitled to set off any unpaid premium due
for periods prior to the coverage date against amounts due the
guaranty association.
(b) In the event the guaranty association transfers its
obligations to another insurer, and if the guaranty association and
the other insurer agree, the other insurer shall succeed to the
rights and obligations of the guaranty association under Subsection
(a) effective as of the date agreed upon by the guaranty association
and the other insurer, regardless of whether the guaranty
association has made the election referred to in Subsection (a),
provided that:
(1) the indemnity reinsurance agreements
automatically terminate for new reinsurance, unless the indemnity
reinsurer and the other insurer agree to the contrary; and
(2) the obligations described in the proviso to
Subsection (a)(2) no longer apply on and after the date the
indemnity reinsurance agreement is transferred to the third party
insurer.
(c) Subsection (b) does not apply if the guaranty
association has previously expressly determined in writing that it
will not exercise the election referred to in Subsection (a).
(d) The provisions of this section supersede the provisions
of any law of this state or of any affected reinsurance agreements
that provide for or require any payment of reinsurance proceeds, on
account of losses or events that occur in periods after the coverage
date, to the receiver of the insolvent member insurer. Subject to
applicable setoff provisions, the receiver remains entitled to any
amounts payable by the reinsurer under the reinsurance agreements
with respect to losses or events that occur in periods prior to the
coverage date.
(e) Except as otherwise expressly provided in this section,
nothing in this section alters or modifies the terms and conditions
of the indemnity reinsurance agreements of the insolvent member
insurer. Nothing in this section abrogates or limits any rights of
any reinsurer to claim that it is entitled to rescind a reinsurance
agreement. Nothing in this section gives a policy owner or
beneficiary an independent cause of action against an indemnity
reinsurer that is not otherwise set forth in the indemnity
reinsurance agreement. Nothing in this section applies to
reinsurance agreements covering property or casualty risks.
Sec. 21A.214. RECOVERY OF PREMIUMS OWED. (a) An insured
shall pay, either directly to the liquidator or to any agent that
has paid or is obligated to pay the liquidator 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 liquidator 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 liquidation order, whether earned or unearned,
based on the termination of coverage under Section 21A.152. The
unpaid premium due the liquidator 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 liquidator 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 liquidation.
(d) Persons that collect premium or finance premium under a
premium finance contract that is due the insurer in liquidation are
deemed to hold that premium in trust as a fiduciary for the benefit
of the insurer and to have availed themselves of the laws of this
state, regardless of any provision 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 liquidator has the right to
collect any unpaid financed premium directly from the premium
finance company, by taking an assignment of the underlying premium
finance contracts, 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) a penalty 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 allowed for by
the commissioner.
(g) Before the commissioner may take any action as set forth
in Subsection (f), written notice must be given to the person,
company, association, or exchange accused of violating the law,
stating specifically the nature of the alleged violation and fixing
a time and place, at least 10 days after the date of the notice,
when a hearing on the matter will be held. After a hearing or upon
failure of the accused to appear at a hearing, the commissioner, if
a violation is found, shall impose any of the penalties under
Subsection (f) as deemed advisable. If the commissioner takes
action under this subsection, the party aggrieved may appeal from
that action to the receivership court.
[Sections 21A.215-21A.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.156, 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 proof 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 claims 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 making 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.204, 21A.205, or 21A.206, or was voluntarily surrendered under
Section 21A.209, and the filing satisfies the conditions of Section
21A.209; 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 shall permit guaranty associations to
file claims late and to receive a ratable share of distributions,
whether past or future, as if such 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 claimants;
(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.
Sec. 21A.253. ALLOWANCE OF CLAIMS. (a) Except as provided
in Subsection (j), 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 compound,
compromise, or in any other manner negotiate 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 evaluation 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, by any means authorized
under this chapter. 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 30th day after the mailing of the
notice as set forth in Subsection (b), those noticed may file
objections with the liquidator. Any filed 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 and binding on all persons that
were provided notice. Objections filed with the receivership court,
but not the liquidator, do not comply with this requirement.
(d) Except as provided in Section 21A.255, a contingent or
unliquidated claim may not be allowed unless the claim becomes
absolute on or before the coverage termination date established by
the liquidation order. For purposes of this subsection, a claim:
(1) is contingent if the accident, casualty, disaster,
or loss insured or reinsured against occurred on or before the event
triggering the company's obligation to pay has not occurred as of
the coverage termination date; and
(2) is unliquidated if the amount of the claim has not
been determined.
(e) A claim that is unmature as of the coverage termination
date established by the liquidation order may be allowed as if it
were mature, except the claim must be discounted at the higher of
the legal rate of interest accruing on judgments or the rate of
interest available on U.S. Treasury securities of approximately the
same maturity. A claim is unmature if payment on the claim is not
yet due.
(f) 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 quantum of
damages.
(g) 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.
(h) 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 be were the insurer not in
liquidation.
(i) The liquidator shall disallow claims that are for or
determined to be for 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.
(j) No claim need be allowed if it does not contain all the
applicable information required by Section 21A.252.
(k) 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 as appropriate.
(l) 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.
Sec. 21A.254. CLAIMS UNDER OCCURRENCE POLICIES. 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 then known, if the policy is an
occurrence policy. After filing a claim for protection under this
section, at the time that a specific claim is made by or against the
insured, the insured shall supplement the claim, and the receiver
shall treat the claim as a contingent, unliquidated, or unmature
claim. Any claims of policyholders for protection under occurrence
policies remaining at or near the closing of the estate shall be
disposed of in accordance with this section.
Sec. 21A.255. ALLOWANCE OF CONTINGENT AND UNLIQUIDATED
CLAIMS. (a) A claim of an insured or third party may be allowed,
regardless of the fact that it was contingent or unliquidated as of
the date provided in Section 21A.253(d), if:
(1) any contingency is removed in accordance with
Subsection (b); and
(2) the value of the claim is determined in accordance
with Subsection (c).
(b) Unless the receivership court directs otherwise, a
contingent claim may be allowed if the claimant has presented proof
of the insurer's obligation to pay reasonably satisfactory to the
liquidator 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 shall otherwise direct,
that no further valid claims can be made against the insurer arising
out of the cause of action other than those already presented.
(c) An unliquidated claim may be allowed if the amount of
the claim has been determined or the amount of the claim remains
undetermined. The valuation of the unliquidated claim may be made
by estimate when the liquidator determines that liquidation of the
claim would unduly delay the administration of the liquidation
proceeding or that the administrative expense of processing and
adjudicating the claim or group of claims of a similar type would be
unduly excessive when compared with the property that is estimated
to be available for distribution with respect to the claim. Any
estimate must be based on an accepted method of valuing claims with
reasonable certainty, such as actuarial evaluation.
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(k). 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 such aggregate policy
limits have been exceeded. From and after the 30th day after the
date of the liquidator's notice, no further amounts shall 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 in 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) No claim may be allowed under this section to the extent
it 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 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
discharge the guaranty association from any of its responsibilities
and duties or to 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.
(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 it 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 guaranty
associations as part of their 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 THE
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) The amount determined 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.
(c) 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.210(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 Subsection 21A.206(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 from the insurer's
property 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. Except as
provided in Subsection (a)(2), 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)(1) Class 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) 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.
(3) 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 6 claims.
(b) Class 2. The reasonable expenses of a guaranty
association, including overhead, salaries, and other general
administrative expenses, allocable to the receivership, including
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, Sections 2(3) and 13, Article 21.28-C, and Section 12,
Article 21.28-D, or similar duties under the statute governing a
similar organization in another state. In the case of property and
casualty guaranty associations, the expenses shall include loss
adjustment expenses, including adjusting and other expenses and
defense and cost containment expenses.
(c) Class 3. All claims under policies of insurance,
including third-party claims, claims under nonassessable policies
for unearned premium, 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 2, including indemnity payments
on covered claims and, in the case of a life, health, and annuity
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 the foregoing, the following claims are
excluded from Class 3 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 insolvent
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 6.
(d) Class 4. Claims of the federal government not included
in Class 3.
(e) Class 5. 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.
(f) Class 6. Claims of other unsecured creditors not
included in Classes 1 through 5, including claims under reinsurance
contracts, claims of guaranty associations for assessments not paid
by the insurer, and other claims excluded from Class 3.
(g) Class 7. 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.
(h) Class 8. 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 10 claims under Subsection (j).
(i) Class 9. Except as provided in Sections 21A.251(b) and
(c), late filed claims that would otherwise be classified in
Classes 3 through 8.
(j) Class 10. Surplus notes, capital notes or contribution
notes or similar obligations, premium refunds on assessable
policies, and any other claims specifically subordinated to this
class.
(k) Class 11. Interest on allowed claims of Classes 1
through 10, according to the terms of a plan proposed by the
liquidator and approved by the receivership court.
(l) Class 12. 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 3, 6,
or 11.
Sec. 21A.302. PARTIAL AND FINAL DISTRIBUTIONS OF ASSETS.
(a) With the approval of the receivership court, a liquidator may
declare and pay a partial or final distribution to claimants whose
claims have been allowed.
(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.
Sec. 21A.303. EARLY ACCESS DISBURSEMENTS. (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 Subsection 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 Subsection 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 thereafter 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 the provisions of 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 Subsections 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.015. 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 in 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 Subsections
21A.301(b) and (c);
(2) the calculation 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 Subsections 21A.301(a), (b), or (c). No bond may be
required of any guaranty association.
(h) Nothing in this section affects the method in which
guaranty associations determine their statutory coverage
obligations.
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 receivership 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 receivership proceeding, the commissioner
may file a motion for an order directing the disposition of the
funds in the court in which the receivership 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 receivership 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 Section 21A.305;
(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 distributed to the known
claimants with approved claims.
Sec. 21A.305. GENERAL RECEIVERSHIP EXPENDITURES. (a) 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.
(b) Any advance to a receivership under Subsection (a)(2)
must be treated as a Class 1 claim under Subsection
21A.301(a)(1)(E), payable to the account.
(c) 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.306-21A.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 PROCEEDINGS. (a) 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 discharge. The
receivership court may grant the discharge and make any other
orders, including orders to transfer any remaining funds that are
uneconomic to distribute, or pursuant to Subsection 21A.302(c),
assign any assets that remain unliquidated, including claims and
causes of action, as may be deemed appropriate.
(b) Any other person may apply to the receivership court at
any time for an order under Subsection (a). If the application is
denied, the applicant shall pay the costs and expenses of the
liquidator in resisting the application, including reasonable
attorney's fees.
Sec. 21A.353. REOPENING LIQUIDATION. 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 proceedings 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 LIQUIDATION. (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 receivership 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. CONSERVATION OF PROPERTY OF FOREIGN INSURERS.
(a) If no domiciliary receiver has been appointed, 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 by official action in its domiciliary state or in any
other state; or
(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.
(b) If a domiciliary receiver has been appointed, the
commissioner may initiate an action against a foreign insurer under
this section only with the consent of the domiciliary receiver.
(c) An order entered pursuant to this section must appoint
the commissioner as conservator and must be limited to the
insurer's property and records located in this state.
(d) The provisions of Section 21A.201(c) notwithstanding,
the conservator shall hold and conserve the assets until the
commissioner in the insurer's domiciliary state is appointed its
receiver or until an order terminating conservation is entered
under Subsection (f). Once a domiciliary receiver is appointed, the
conservator shall turn over all property subject to an order under
this section to the domiciliary receiver.
(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 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 a foreign 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
except special deposits, if any. The statutory provisions of a
foreign state and all orders entered by courts of competent
jurisdiction in relation to the appointment of a domiciliary
receiver and any related proceedings in a foreign state must be
given full faith and credit in this state. This state shall treat
all foreign states as reciprocal states. For purposes of this
section, "foreign state" means any state other than this state.
(b) Upon appointment of a domiciliary receiver in a foreign
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
statutory deposits, to the receiver.
(c) Special deposits must be administered in accordance
with the statutes pursuant to which they are deposited. All amounts
in excess of the estimated amount necessary to administer the
deposit and pay the unpaid special deposit claims must be turned
over to the domiciliary receiver. 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
purpose and intent of this subsection is to equalize to this extent
the advantage gained by the security provided by the special
deposits.
SECTION 2. Article 21.28, Insurance Code, is repealed.
SECTION 3. (a) The changes in law made by this Act apply
only to a receivership proceeding that is pending or the initial
petition for which is filed on or after the effective date of this
Act. A receivership that has closed or terminated before the
effective date of this Act is governed by the law in effect at the
time the receivorship closed or terminated and that law is
continued in effect for that purpose.
(b) The changes in law made by this Act apply only to a
proceeding or cause of action related to but not part of a
receivership that is filed or commences on or after the effective
date of this Act. A proceeding or cause of action related to but not
part of a receivership 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 4. This Act takes effect September 1, 2005.