79R3211 DLF-D
By: Harris S.B. No. 1770
A BILL TO BE ENTITLED
AN ACT
relating to Texas Life, Accident, Health, and Hospital Service
Insurance Guaranty Association.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 3, Article 21.28-D, Insurance Code, is
amended to read as follows:
Sec. 3. COVERAGE AND LIMITATIONS. (a) Subject to
Subsections (a-1) and (a-2) of this section, this [This] Act
provides coverage for a policy or contract specified in Subsection
(b) of this section to the following persons:
(1) a person, other than a nonresident certificate
holder under a group policy or contract, who is the beneficiary,
assignee, or payee of a person covered under Paragraph (2) of this
subsection; [and]
(2) a person who is an owner of or certificate holder
under the policy or contract, other than [; or, in the case of] an
unallocated annuity contract or structured settlement annuity, [to
the person who is the contract holder,] and who:
(A) is a resident; or
(B) is not a resident, but only under all of the
following conditions [if]:
(i) the insurers that issued the policies
or contracts are domiciled in this state;
(ii) [the insurers never held a license or
certificate of authority in the states in which the persons reside;
[(iii)] the state in which the person resides
has an association [states have associations] similar to the
association created by this Act; and
(iii) [(iv)] the person is not eligible for
coverage by an association in any other state because the insurers
were not licensed in the state at the time specified in that state's
guaranty association law;
(3) a person who is the owner of an unallocated annuity
contract issued to or in connection with:
(A) a benefit plan whose plan sponsor has the
sponsor's principal place of business in this state; or
(B) a government lottery, if the owner is a
resident; and
(4) a person who is the payee under a structured
settlement annuity, or beneficiary of the payee if the payee is
deceased, if:
(A) the payee is a resident, regardless of where
the contract owner resides;
(B) the contract owner of the structured
settlement annuity is a resident; or
(C) the insurer that issued the structured
settlement annuity is domiciled in this state and:
(i) the state in which the contract owner
resides has an association similar to the association created by
this Act; and
(ii) neither the payee or, if applicable,
the payee's beneficiary, nor the contract owner is eligible for
coverage by the association in the state in which the payee or
contract owner resides [the associations].
(a-1) This Act does not not provide coverage to:
(1) a person who is a payee or the beneficiary of a
payee with respect to a contract the owner of which is a resident of
this state, if the payee or the payee's beneficiary is afforded any
coverage by the association of another state; or
(2) a person otherwise described by Subsection (a)(3)
of this section, if any coverage is provided by the association of
another state to that person.
(a-2) This Act is intended to provide coverage to persons
who are residents of this state, and in those limited circumstances
as described in this Act, to nonresidents. In order to avoid
duplicate coverage, if a person who would otherwise receive
coverage under this Act is provided coverage under the laws of any
other state, the person may not be provided coverage under this Act.
In determining the application of the provisions of this subsection
in situations in which a person could be covered by the association
of more than one state, whether as an owner, payee, beneficiary, or
assignee, this Act shall be construed in conjunction with other
state laws to result in coverage by only one association.
(b) This Act provides coverage to the persons specified in
Subsection (a) of this section, and subject to Subsections (a-1)
and (a-2) of this section, for direct, non-group life, health,
accident, annuity, and supplemental policies or contracts, for
certificates under direct group policies and contracts, group
hospital service contracts, and for unallocated annuity contracts
issued by member insurers, except as limited by this Act. This Act
also provides coverage for all other insurance coverages written by
mutual assessment corporations, local mutual aid associations,
statewide mutual assessment companies, and stipulated premium
companies licensed to do business in this state. Annuity contracts
and certificates under group annuity contracts include guaranteed
investment contracts, deposit administration contracts,
unallocated funding agreements, allocated funding agreements,
structured settlement annuities, annuities issued to or in
connection with government lotteries [agreements, lottery
contracts], and any immediate or deferred annuity contracts.
(c) This Act does not provide coverage for:
(1) a portion of a policy or contract not guaranteed by
the insurer, or under which the risk is borne by the policy or
contract owner [holder];
(2) a policy or contract of reinsurance, unless
assumption certificates have been issued;
(3) a portion of a policy or contract to the extent
that the rate of interest on which it is based:
(A) averaged over the period of four years before
the date on which the member insurer becomes impaired or insolvent
under this Act, whichever is earlier [association becomes obligated
with respect to the policy or contract], exceeds a rate of interest
determined by subtracting two percentage points from Moody's
Corporate Bond Yield Average averaged for that same four-year
period or for a lesser period if the policy or contract was issued
less than four years before the member insurer becomes impaired or
insolvent under this Act, whichever is earlier [association became
obligated]; and
(B) on and after the date on which the member
insurer becomes impaired or insolvent under this Act, whichever is
earlier [association becomes obligated with respect to the policy
or contract], exceeds the rate of interest determined by
subtracting three percentage points from Moody's Corporate Bond
Yield Average as most recently available;
(4) a portion of a policy or contract issued to a plan
or program of an employer, association, [or] similar entity, or
other person to provide life, health, or annuity benefits to its
employees, [or] members, or others, to the extent that the plan or
program is self-funded or uninsured, including but not limited to
benefits payable by an employer, association, or similar entity
under:
(A) a multiple employer welfare arrangement as
defined by the Employee Retirement Income Security Act of 1974 (29
U.S.C. Section 1002);
(B) a minimum premium group insurance plan;
(C) a stop-loss group insurance plan; or
(D) an administrative services-only contract;
(5) a portion of a policy or contract, to the extent
that it provides dividends or experience rating credits, voting
rights, or provides that fees or allowances be paid to any person,
including the policy or contract owner [holder], in connection with
the service to or administration of the policy or contract;
(6) a policy or contract issued in this state by a
member insurer at a time when it was not licensed to issue the
policy or contract in this state;
(7) an unallocated annuity contract issued to or in
connection with a [an employee] benefit plan protected under the
federal Pension Benefit Guaranty Corporation, regardless of
whether the Pension Benefit Guaranty Corporation has not yet become
liable to make any payments with respect to the benefit plan;
(8) a portion of an unallocated annuity contract that
is not issued to or in connection with a specific employee, benefit
plan for a union or association of natural persons, or a government
lottery; [and]
(9) any portion of a financial guarantee, funding
agreement, or guaranteed investment contract which (1) contains no
mortality guarantees and (2) is not issued to or in connection with
a specific employee, benefit plan, or a governmental lottery;
(10) a portion of a policy or contract to the extent
that the assessments required by Section 9 of this Act with respect
to the policy or contract are preempted by federal or state law;
(11) a contractual agreement that established the
member insurer's obligations to provide a book value accounting
guaranty for defined contribution benefit plan participants by
reference to a portfolio of assets that is owned by the benefit plan
or the plan's trustee in a case in which neither the benefit plan
sponsor nor its trustee is an affiliate of the member insurer; and
(12) a portion of a policy or contract to the extent
the policy or contract provides for interest or other changes in
value that are to be determined by the use of an index or external
reference stated in the policy or contract, but that have not been
credited to the policy or contract, or as to which the policy or
contract owner's rights are subject to forfeiture, as of the date
the member insurer becomes an impaired or insolvent insurer under
this Act, whichever date is earlier.
(c-1) For purposes of Subsection (c)(12) of this section, if
a policy's or contract's interest or changes in value are credited
less frequently than annually, for purposes of determining the
values that have been credited and are not subject to forfeiture as
described by Subsection (c)(12), the interest or change in value
determined by using the procedures defined in the policy or
contract is credited as if the contractual date of crediting
interest or changing values is the earlier of the date of impairment
or the date of insolvency, and is not subject to forfeiture.
(d) The benefits for which the association may become liable
may not exceed the contractual obligations for which the insurer is
liable or would have been liable if it were not an impaired or
insolvent insurer. The association has no obligation to provide
benefits outside the express written terms of the policy or
contract, including:
(1) claims based on marketing materials;
(2) claims based on side letters, riders, or other
documents that were issued without meeting applicable policy form
filing or approval requirements;
(3) claims based on misrepresentation of or regarding
policy benefits;
(4) extracontractual claims; or
(5) claims for penalties or consequential or
incidental damages.
(e) The limitations set forth in this Act are limitations on
the benefits for which the association is obligated before taking
into account either the association's subrogation and assignment
rights or the extent to which those benefits could be provided out
of the assets of the impaired or insolvent insurer attributable to
covered policies. The costs of the association's obligations under
this Act may be met by the use of assets attributable to covered
policies or reimbursed to the association pursuant to the
association's subrogation and assignment rights.
SECTION 2. Section 5, Article 21.28-D, Insurance Code, is
amended by amending Subdivisions (2), (3), (4), (5), (6), (7), (9),
(10), (11), and (12) and adding Subdivisions (2-a), (8-a), (9-a),
and (11-a) to read as follows:
(2) "Association" means the Texas Life, Accident,
Health, and Hospital Service Insurance Guaranty Association
created under Section 6 of this Act.
(2-a) "Benefit plan" means a specific employee, union,
or association of natural persons benefit plan.
(3) "Contractual obligation" means an obligation
under a policy or contract or certificate under a group policy or
contract, or portion thereof for which coverage is provided under
Section 3 of this Act. A contractual obligation does not include:
(A) death benefits in an amount in excess of
$300,000 or a net cash surrender or net cash withdrawal value in an
amount in excess of $100,000 [in the aggregate] under one or more
covered policies on any one life;
(B) an amount in excess of $100,000 in the
present value [aggregate] under one or more annuity contracts
within the scope of this Act issued with respect to one life under
[to the same holder of] individual annuity policies or [to the same
annuitant or participant under] group annuity policies or an amount
in excess of $5,000,000 in unallocated annuity contract benefits
with respect to any one contract holder irrespective of the number
of such contracts;
(C) an amount in excess of the following amounts,
including any net cash surrender or cash withdrawl values,
[$200,000 in the aggregate] under one or more accident and health,
accident, [or] health, or long-term care insurance policies on any
one life:
(i) $500,000 for basic hospital,
medical-surgical, or major medical insurance, as those terms are
defined in this code or rules adopted by the commissioner;
(ii) $300,000 for disability and long-term
care insurance, as those terms are defined in this code or rules
adopted by the commissioner; or
(iii) $200,000 for coverages that are not
defined as basic hospital, medical-surgical, major medical,
disability, or long-term care insurance;
(D) an amount in excess of $100,000 in present
value annuity benefits, in the aggregate, including any net cash
surrender and net cash withdrawal values, with respect to each
individual participating in a governmental retirement benefit plan
established under Section 401, 403(b), or 457, Internal Revenue
Code of 1986 (26 U.S.C. Sections 401, 403(b), and 457), covered by
an unallocated annuity contract or the beneficiary or beneficiaries
of the individual if the individual is deceased;
(E) an amount in excess of $100,000 in present
value annuity benefits, in the aggregate, including any net cash
surrender and net cash withdrawal values, with respect to each
payee of a structured settlement annuity or the beneficiary or
beneficiaries of the payee if the payee is deceased;
(F) aggregate benefits in an amount in excess of
$300,000 with respect to one life, except with respect to:
(i) benefits paid under basic hospital,
medical-surgical, or major medical insurance policies, described
by Paragraph (C)(i) of this subdivision, in which case the
aggregate benefits are $500,000; and
(ii) benefits paid to one owner of multiple
nongroup policies of life insurance, whether the policy owner is an
individual, firm, corporation, or other person, and whether the
persons insured are officers, managers, employees, or other
persons, in which case the maximum benefits are $5,000,000
regardless of the number of policies and contracts held by the
owner;
(G) an amount in excess of $5,000,000 in
benefits, with respect to either one plan sponsor whose plans own
directly or in trust one or more unallocated annuity contracts not
included in Paragraph (D) of this subdivision irrespective of the
number of contracts with respect to the contract owner or plan
sponsor or one contract owner provided coverage under Section
3(a)(3)(B) of this Act, except that, if one or more unallocated
annuity contracts are covered contracts under this Act and are
owned by a trust or other entity for the benefit of two or more plan
sponsors, coverage shall be afforded by the association if the
largest interest in the trust or entity owning the contract or
contracts is held by a plan sponsor whose principal place of
business is in this state and in no event shall the association be
obligated to cover more than $5,000,000 in benefits with respect to
all these unallocated contracts;
(H) any contractual obligations of the insolvent
or impaired insurer under a covered policy or contract that do not
materially affect the economic value of economic benefits of the
covered policy or contract; or
(I) [(D)] punitive, exemplary,
extracontractual, or bad faith damages, whether agreed to or
assumed by an insurer or insured or imposed by a court of competent
jurisdiction.
(4) "Covered policy" means any policy or contract, or
portion of a policy or contract, within the scope of this Act under
Section 3 of this Act.
(5) "Impaired insurer" means[:
[(A)] a member insurer that is designated an
"impaired insurer" by the commissioner and is:
(A) placed by a court [the commissioner] under an
order of supervision, liquidation, rehabilitation, or
conservation; or
(B) placed under an order of supervision,
liquidation, rehabilitation, or conservation under the provisions
of Article 21.28 or 21.28-A of this code [, Insurance Code, and that
has been designated an "impaired insurer" by the commissioner; or
[(B) a member insurer determined in good faith by
the commissioner to be unable or potentially unable to fulfill its
contractual obligations].
(6) "Insolvent insurer" means a member insurer [whose
minimum free surplus, if a mutual company, or whose required
capital, if a stock company, becomes impaired to the extent
prohibited by law and] that has been placed under an order of
liquidation with a finding of insolvency [designated an "insolvent
insurer"] by a court [the commissioner].
(7) "Member insurer" means any insurer licensed or
that holds a certificate of authority to transact in this state any
kind of insurance for which coverage is provided under Section 3 of
this Act, and includes any insurer whose license or certificate of
authority in this state may have been suspended, revoked, not
renewed, or voluntarily withdrawn, including a mutual assessment
corporation, a local mutual association, a statewide mutual
assessment company, and a stipulated premium company licensed to do
business in this state, but does not include:
(A) a health maintenance organization;
(B) a fraternal benefit society;
(C) a mandatory state pooling plan;
(D) an insurance exchange; [or]
(E) an organization which has a certificate of
authority or license limited to the issuance of charitable gift
annuities as defined in this code or rules adopted by the
commissioner; or
(F) any entity similar to any of those described
by Paragraphs (A)-(E) [(A)-(D)] of this subdivision.
(8-a) "Owner" means the owner of a policy or contract
and "policy owner" and "contract owner" mean the person who is
identified as the legal owner under the terms of the policy or
contract or who is otherwise vested with legal title to the policy
or contract through a valid assignment completed in accordance with
the terms of the policy or contract and is properly recorded as the
owner on the books of the insurer. The terms owner, contract owner,
and policy owner do not include persons with a mere beneficial
interest in a policy or contract.
(9) "Person" means any individual, corporation,
limited liability company, partnership, association, governmental
body or entity, or voluntary organization.
(9-a) "Plan sponsor" means:
(A) the employer in the case of a benefit plan
established or maintained by a single employer;
(B) the employee organization in the case of a
benefit plan established or maintained by an employee organization;
or
(C) in a case of a benefit plan established or
maintained by two or more employers or jointly by one or more
employers and one or more employee organizations, the association,
committee, joint board of trustees, or other similar group of
representatives of the parties who establish or maintain the
benefit plan.
(10) "Premiums" means amounts received on covered
policies or contracts less premiums, considerations, and deposits
returned on those policies or contracts, and less dividends and
experience credits on those policies or contracts. "Premiums" does
not include amounts received for policies or contracts or for the
portions of any policies or contracts for which coverage is not
provided under Section 3(b) of this Act, except that assessable
premiums shall not be reduced on account of Section 3(c)(3) of this
Act relating to interest limitations and Section 5(3) of this Act
relating to limitations with respect to any one individual, any one
participant, any one annuitant, and any one contract owner
[holder]. "Premiums" does not include premiums in excess of
$5,000,000 [five million dollars] on any unallocated annuity
contract not issued under a governmental benefit [retirement] plan
established under Section 401, 403(b), or 457 of the United States
Internal Revenue Code (26 U.S.C. Sections 401, 403(b) and 457).
"Premiums" does not include premiums in excess of $5,000,000 with
respect to multiple nongroup policies of life insurance owned by
one owner, whether the policy owner is an individual, firm,
corporation, or other person, and whether the persons insured are
officers, managers, employees, or other persons, regardless of the
number of policies or contracts held by the owner. "Premiums" also
does not include premiums received from the Treasury of the State of
Texas or from the Treasury of the United States for insurance
contracted for by the state or federal government for the purpose of
providing welfare benefits to designated welfare recipients or for
insurance contracted for by the state or federal government in
accordance with or in furtherance of the provisions of Title 2,
Human Resources Code, or the Federal Social Security Act.
(11) "Resident" means any person who resides in this
state on the earlier of the date of entry of a court order that
determines a member insurer to be an impaired insurer or the date of
entry of a court order that determines a member insurer to be an
insolvent insurer [at the time a member insurer is determined to be
an impaired or insolvent insurer] and to whom a contractual
obligation is owed. A person may be a resident of only one state,
which in the case of a person other than a natural person is its
principal place of business. A United States citizen that is either
a resident of a foreign country or a resident of a United States
possession, territory, or protectorate that does not have an
association similar to the association created by this Act is
considered a resident of the state of domicile of the insurer that
issued the policy or contract.
(11-a) "Structured settlement annuity" means an
annuity purchased to fund periodic payments for a plaintiff or
other claimant in payment for or with respect to personal injury
suffered by the plaintiff or other claimant.
(12) "Supplemental contract" means any written
agreement entered into for the distribution of policy or contract
proceeds.
SECTION 3. Article 21.28-D, Insurance Code, is amended by
adding Section 5A to read as follows:
Sec. 5A. DEFINITION OF PRINCIPAL PLACE OF BUSINESS OF PLAN
SPONSOR OR OTHER PERSON. (a) Except as otherwise provided by this
section, in this Act, the "principal place of business" of a plan
sponsor or a person other than an individual means the single state
in which the individuals who establish policy for the direction,
control, and coordination of the operations of the plan sponsor or
person as a whole primarily exercise that function, as determined
by the association in its reasonable judgment by considering the
following factors:
(1) the state in which the primary executive and
administrative headquarters of the plan sponsor or person is
located;
(2) the state in which the principal office of the
chief executive officer of the plan sponsor or person is located;
(3) the state in which the board of directors, or
similar governing person or persons, of the plan sponsor or person
conduct the majority of their meetings;
(4) the state in which the executive or management
committee of the board of directors, or similar governing person or
persons, of the plan sponsor or person conduct the majority of their
meetings;
(5) the state from which the management of the overall
operations of the plan sponsor or person is directed; and
(6) in the case of a benefit plan sponsored by
affiliated companies comprising a consolidated corporation, the
state in which the holding company or controlling affiliate has its
principal place of business as determined using the factors
described by Subdivisions (1)-(5) of this subsection.
(b) In the case of a plan sponsor, if more than 50 percent of
the participants in the benefit plan are employed in a single state,
that state is the principal place of business of the plan sponsor.
(c) The principal place of business of a plan sponsor of a
benefit plan described in Section 5(9-a)(C) of this article is the
principal place of business of the association, committee, joint
board of trustees, or other similar group of representatives of the
parties who establish or maintain the benefit plan that, in lieu of
a specific or clear designation of a principal place of business,
shall be deemed to be the principal place of business of the
employer or employee organization that has the largest investment
in that benefit plan.
SECTION 4. Section 6(a), Article 21.28-D, Insurance Code,
is amended to read as follows:
(a) The Texas Life, Accident, Health, and Hospital Service
Insurance Guaranty Association is a nonprofit legal entity. All
member insurers shall be and remain members of the association as a
condition of their authority to transact insurance in this state.
The association shall perform its functions under the plan of
operation established and approved under Section 10 of this Act and
shall exercise its powers through a board of directors established
under Section 7 of this Act. For purposes of administration and
assessment, the association shall maintain four accounts:
(1) the accident, health, and hospital services
insurance account;
(2) the life insurance account;
(3) the annuity account; and
(4) the administrative account.
SECTION 5. Section 8, Article 21.28-D, Insurance Code, is
amended by amending Subsections (d), (e), (n), and (v), and by
adding Subsections (u-1), (u-2), (u-3), (x), and (y) to read as
follows:
(d) Except as provided by Subsection (e) of this section, if
a member insurer is an impaired or insolvent insurer, the
association shall provide the moneys, pledges, guarantees, or other
means as are reasonably necessary to discharge the duties of the
impaired or insolvent insurer and:
(1) guarantee, assume, or reinsure, or cause to be
guaranteed, assumed, or reinsured, the policies or contracts of the
impaired or insolvent insurer; or
(2) assure payment of the contractual obligations of
the impaired or insolvent insurer.
(e) When proceeding under Subsections (b)(2) or (d) of this
section, with respect to only life and health insurance policies
the association shall:
(1) assure payment of benefits for premiums identical
to the premiums and benefits, except for terms of conversion and
renewability that would have been payable under the policies of the
impaired or insolvent insurer, for claims incurred:
(A) with respect to a group policy or contract,
the later of:
(i) the earlier of the next renewal date
under the policy or contract or the 45th day after the date the
association becomes obligated with respect to the policy; or
(ii) the 30th day after the date the
association becomes obligated with respect to the policy; or
(B) with respect to an individual policy, the
later of:
(i) the earlier of the next renewal date
under the policy, if any, or the date one year after the date the
association becomes obligated with respect to the policy; or
(ii) the 30th day after the date the
association becomes obligated with respect to the policy;
(2) make diligent efforts to provide all known
insureds or group policyholders notice before the 30th day before
the benefits provided are terminated; and
(3) with respect to individual policies, make
available to each known insured, or owner if other than the insured,
and with respect to an individual formerly insured under a group
policy who is not eligible for replacement group coverage,
substitute coverage on an individual basis in accordance with the
provisions of Subsection (f) of this section, if the insureds had a
right under law or the terminated policy to convert coverage to
individual coverage or to continue an individual policy in force
until a specified age or for a specified time, during which the
insurer had no right unilaterally to make changes in any provision
of the policy or had a right only to make changes in premium by
class.
(n) Premiums due for coverage after entry of an order of
receivership of an impaired or insolvent insurer belong to and are
payable at the direction of the association, and the association is
liable for unearned premiums due to policy or contract owners
arising after the entry of the order.
(u-1) The rights of the association under Subsection (u)
include, in the case of a structured settlement annuity, any rights
of the owner, beneficiary, or payee of the annuity, to the extent of
benefits received under this Act, against any person originally or
by succession responsible for the losses arising from the personal
injury relating to the annuity or payment for the annuity, other
than a person responsible solely by reason of serving as an assignee
in respect of a qualified assignment under Section 130, Internal
Revenue Code of 1986 (26 U.S.C. Section 130).
(u-2) If a provision of Subsection (t), (u), or (u-1) of
this section is invalid or ineffective with respect to any person or
claim for any reason the amount payable by the association with
respect to the related covered obligations is reduced by the amount
realized by any other person with respect to the person or claim
that is attributable to the policies, or portion of the policies,
covered by the association. If the association has provided
benefits with respect to a covered obligation and a person recovers
amounts as to which the association has rights described in
Subsection (t), (u), or (u-1) of this section, the person shall pay
to the association the portion of the recovery attributable to the
policies, or portion of the policies, covered by the association.
(u-3) A deposit in this state, held under law or required by
the commissioner for the benefit of creditors, including policy
owners, that is not turned over to the domiciliary liquidator upon
the entry of a final order of liquidation or order approving a
rehabilitation plan of an insurer domiciled in this state or a
reciprocal state in accordance with Section 13, Article 21.28, of
this code, shall be promptly paid to the association. The
association is entitled to retain a portion of any amount paid to
the association under this subsection equal to the percentage
determined by dividing the aggregate amount of policy owners'
claims related to that insolvency for which the association has
provided statutory benefits by the aggregate amount of all policy
owners' claims in this state related to that insolvency and shall
remit to the domiciliary receiver the amount paid to the
association and retained under this subsection. The amount paid to
the association under this subsection, less the amount retained by
the association under this subsection, is treated as a distribution
of estate assets under Section 7A(a), Article 21.28, of this code,
or the similar law of the state of domicile of the impaired or
insolvent insurer.
(v) The association may:
(1) enter into contracts as are necessary or proper to
carry out the provisions and purposes of this Act;
(2) sue or be sued, including taking any legal actions
necessary or proper to recover any unpaid assessments under Section
9 of this Act and to settle claims or potential claims against it;
(3) borrow money to effect the purposes of this Act,
and any notes or other evidence of indebtedness of the association
not in default are legal investments for domestic insurers and may
be carried as admitted assets;
(4) employ or retain employees or contractors to
handle the financial transactions of the association and to perform
other functions under this Act;
(5) take legal action as may be necessary to avoid
payment of improper claims; [and]
(6) exercise, for the purposes of this Act and to the
extent approved by the commissioner, the powers of a domestic life,
accident, health, or hospital service insurer, but the association
may not issue insurance policies or annuity contracts other than
those issued to perform its obligations under this Act;
(7) request information from a person seeking coverage
from the association in determining its obligations under this Act
with respect to the person, and the person shall promptly comply
with the request; and
(8) take any other necessary or appropriate action to
discharge the association's duties and obligations under this Act
or to exercise the association's powers under the Act.
(x) The board of directors of the association shall have
discretion and may exercise reasonable business judgment to
determine the means by which the association is to provide the
benefits of this Act in an economical and efficient manner.
(y) If the association arranges or offers to provide the
benefits of this Act to a covered person under a plan or arrangement
that fulfills the association's obligations under this Act, the
person is not entitled to benefits from the association in addition
to or other than those provided under the plan or arrangement.
SECTION 6. Section 9, Article 21.28-D, Insurance Code, is
amended by amending Subsections (b), (d), (f), (g), and (h) and
adding Subsection (b-1) to read as follows:
(b) There are two classes of assessments, as follows:
(1) Class A assessments are authorized and called
[made] to meet administrative costs of the association,
administrative expenses properly incurred under this Act relating
to any unauthorized insurer or nonmember of the association, and
other general expenses not related to a particular insolvent or
impaired insurer; and
(2) Class B assessments are authorized and called
[made] to the extent necessary to carry out the powers and duties of
the association under Section 8 with regard to an insolvent or
impaired insurer.
(b-1) For purposes of Subsection (b) of this section, an
assessment is authorized at the time a resolution by the board of
directors is passed under which an assessment will be called
immediately or in the future from member insurers for a specified
amount and an assessment is called at the time a notice has been
issued by the association to member insurers requiring that an
authorized assessment be paid within a period stated in the notice.
An authorized assessment becomes a called assessment at the time
notice is mailed by the association to member insurers.
(d) The amount of a Class B assessment shall be allocated
[divided] among the separate accounts in accordance with an
allocation formula based on:
(1) the premiums or reserves of the impaired or
insolvent insurer; or
(2) any other standard deemed by the board of
directors in the board's sole discretion as being fair and
reasonable under the circumstances [as reflected in the annual
statements for the year preceding the assessment in the same
proportion that the premiums from the policies covered by each
account were received by the insolvent or impaired insurer from all
covered policies during the year preceding impairment].
(f) Class B assessments against member insurers for each
account shall be in the proportion that the premiums received on
[all] business in this state by each assessed member insurer on
policies or contracts covered by each account for the three most
recent calendar years for which information is available preceding
the year in which the insurer became impaired or insolvent bear to
[the] premiums received on [all] business in this state for those
calendar years by all assessed member insurers.
(g) Assessments for funds to meet the requirements of the
association with respect to an insolvent or impaired insurer may
not be authorized and called [made] until necessary to implement
the purposes of this Act. Classification of assessments under
Subsection (b) of this section and computation of assessments under
this section shall be made with a reasonable degree of accuracy,
recognizing that exact determinations may not always be possible.
The association shall notify each member insurer of its anticipated
pro rata share of an authorized assessment not yet called not later
than the 180th day after the date the assessment is authorized.
(h) The association may defer, in whole or in part, the
assessment of a member insurer if, in the opinion of the
association, payment of the assessment would endanger the ability
of the member insurer to fulfill its contractual obligations. The
total of all assessments on a member insurer for each account may
not exceed two [one] percent of the insurer's premiums on the
policies covered by the account during the three [in any one]
calendar years preceding the year in which the insurer became an
impaired or insolvent insurer. If two or more assessments are
authorized in a calendar year with respect to insurers that become
impaired or insolvent in different calendar years, the average
annual premiums for purposes of the aggregate assessment percentage
limitation described by this subsection shall be equal to the
higher of the three-year average annual premiums for the applicable
subaccount or account as computed in accordance with this section.
SECTION 7. Section 13(a), Article 21.28-D, Insurance Code,
is amended to read as follows:
(a) Unless a longer period of time has been required by the
commissioner, a member insurer shall at its option have the right to
show a certificate of contribution as an admitted asset in the form
approved by the commissioner under Section 9(k) of this Act at
percentages of the original face amount approved by the
commissioner, for calendar years as follows:
100 percent for the calendar year of issuance, which shall be
reduced 20 [10] percent a year for each year thereafter for a period
of 5 [10] years.
SECTION 8. Sections 14(d) and (i), Article 21.28-D,
Insurance Code, are amended to read as follows:
(d) Before the termination of any receivership, the court
may take into consideration the contributions of the respective
parties, including the association, the shareholders, and
policyholders of the impaired or insolvent insurer, and any other
party with a bona fide interest, in making an equitable
distribution of the ownership rights of the impaired or insolvent
insurer. In making this determination, the court shall consider
the welfare of the policyholders of the continuing or successor
insurer.
(i) The maximum amount recoverable under Subsections (f)
and (h) of this section is the amount needed in excess of all other
available assets of the impaired or insolvent insurer to pay the
contractual obligations of the impaired or insolvent insurer.
SECTION 9. (a) Effective September 1, 2005:
(1) the name of the Life, Accident, Health, and
Hospital Service Insurance Guaranty Association is changed to the
Texas Life, Accident, Health, and Hospital Service Insurance
Guaranty Association, and all powers, duties, rights, and
obligations of the Life, Accident, Health, and Hospital Service
Insurance Guaranty Association are the powers, duties, rights, and
obligations of the Texas Life, Accident, Health, and Hospital
Service Insurance Guaranty Association;
(2) a member of the board of directors of the Life,
Accident, Health, and Hospital Service Insurance Guaranty
Association is a member of the board of directors of the Texas Life,
Accident, Health, and Hospital Service Insurance Guaranty
Association; and
(3) a reference in law to the Life, Accident, Health,
and Hospital Service Insurance Guaranty Association is a reference
to the Texas Life, Accident, Health, and Hospital Service Insurance
Guaranty Association.
(b) The Texas Life, Accident, Health, and Hospital Service
Insurance Guaranty Association is the successor to the Life,
Accident, Health, and Hospital Service Insurance Guaranty
Association in all respects. All personnel, equipment, data,
documents, facilities, contracts, items, other property, rules,
decisions, and proceedings of or involving the Life, Accident,
Health, and Hospital Service Insurance Guaranty Association are
unaffected by the change in the name of the association.
SECTION 10. This Act takes effect September 1, 2005.