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A BILL TO BE ENTITLED
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AN ACT
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relating to insurer receivership. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subsections (a) and (e), Section 443.005, |
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Insurance Code, are amended to read as follows: |
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(a) Except as authorized by Section 203(e)(3), Pub. L. No. |
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111-203, a [A] delinquency proceeding may not be commenced under |
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this chapter by a person other than the commissioner, and a court |
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does not have jurisdiction to entertain, hear, or determine any |
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delinquency proceeding commenced by any other person. |
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(e) If, on motion of any party, the receivership court finds |
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that any action, as a matter of substantial justice, should be tried |
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in a forum outside this state, the receivership court may enter an |
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appropriate order to stay further proceedings on the action in this |
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state. Except as to claims against the estate, nothing in this |
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chapter deprives a party of any contractual right to pursue |
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arbitration. A party in arbitration may bring a claim or |
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counterclaim against the estate, but the claim or counterclaim is |
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subject to this chapter [Section 443.209]. |
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SECTION 2. Section 443.0135, Insurance Code, is amended by |
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amending Subsection (a) and adding Subsection (c) to read as |
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follows: |
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(a) Except as provided by Subsection (c), the [The] receiver |
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shall use a competitive bidding process in the selection of any |
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special deputies appointed under Section 443.102 or 443.154. The |
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process must include procedures to promote the participation of |
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historically underutilized businesses that have been certified by |
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the comptroller under Section 2161.061, Government Code. |
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(c) In the event of an emergency, the receiver may appoint a |
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special deputy without soliciting competitive bids. For the |
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purposes of this subsection, an emergency exists if: |
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(1) a court has made a determination described by |
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Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203; or |
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(2) the receiver concludes that the competitive |
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bidding process would delay the appointment of a special deputy and |
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that the delay could be hazardous to the insurer's policyholders or |
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creditors or the general public. |
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SECTION 3. Subsection (a), Section 443.052, Insurance Code, |
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is amended to read as follows: |
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(a) Except as authorized by Section 203(e)(3), Pub. L. No. |
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111-203, any [Any] formal delinquency proceeding against a person |
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shall be commenced by filing a petition in the name of the |
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commissioner or department. |
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SECTION 4. Section 443.057, Insurance Code, is amended to |
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read as follows: |
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Sec. 443.057. GROUNDS FOR CONSERVATION, REHABILITATION, OR |
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LIQUIDATION. A [The commissioner may file with a court in this
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state a] petition with respect to an insurer domiciled in this state |
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or an unauthorized insurer for an order of rehabilitation or |
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liquidation may be filed on any one or more of the following |
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grounds: |
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(1) the insurer is impaired; |
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(2) the insurer is insolvent; |
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(3) the insurer is about to become insolvent, with |
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"about to become insolvent" being defined as reasonably anticipated |
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that the insurer will not have liquid assets to meet its next 90 |
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days' current obligations; |
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(4) the insurer has neglected or refused to comply |
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with an order of the commissioner to make good within the time |
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prescribed by law any deficiency, whenever its capital and minimum |
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required surplus, if a stock company, or its surplus, if a company |
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other than stock, has become impaired; |
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(5) the insurer, its parent company, its subsidiaries, |
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or its affiliates have converted, wasted, or concealed property of |
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the insurer or have otherwise improperly disposed of, dissipated, |
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used, released, transferred, sold, assigned, hypothecated, or |
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removed the property of the insurer; |
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(6) the insurer is in a condition such that it could |
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not meet the requirements for organization and authorization as |
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required by law, except as to the amount of the original surplus |
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required of a stock company under Title 6, and except as to the |
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amount of the surplus required of a company other than a stock |
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company in excess of the minimum surplus required to be maintained; |
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(7) the insurer, its parent company, its subsidiaries, |
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or its affiliates have concealed, removed, altered, destroyed, or |
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failed to establish and maintain books, records, documents, |
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accounts, vouchers, and other pertinent material adequate for the |
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determination of the financial condition of the insurer by |
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examination under Chapter 401 or has failed to properly administer |
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claims or maintain claims records that are adequate for the |
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determination of its outstanding claims liability; |
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(8) at any time after the issuance of an order under |
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Section 404.003 or Chapter 441, or at the time of instituting any |
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proceeding under this chapter, it appears to the commissioner that, |
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upon good cause shown, it would not be in the best interest of the |
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policyholders, creditors, or the public to proceed with the conduct |
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of the business of the insurer; |
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(9) the insurer is in a condition such that the further |
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transaction of business would be hazardous financially, according |
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to Subchapter A, Chapter 404, or otherwise, to its policyholders, |
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creditors, or the public; |
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(10) there is reasonable cause to believe that there |
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has been embezzlement from the insurer, wrongful sequestration or |
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diversion of the insurer's property, forgery or fraud affecting the |
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insurer, or other illegal conduct in, by, or with respect to the |
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insurer that, if established, would endanger assets in an amount |
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threatening the solvency of the insurer; |
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(11) control of the insurer is in a person who is: |
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(A) dishonest or untrustworthy; or |
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(B) so lacking in insurance company managerial |
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experience or capability as to be hazardous to policyholders, |
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creditors, or the public; |
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(12) any person who in fact has executive authority in |
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the insurer, whether an officer, manager, general agent, director, |
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trustee, employee, shareholder, or other person, has refused to be |
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examined under oath by the commissioner concerning the insurer's |
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affairs, whether in this state or elsewhere or if examined under |
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oath, refuses to divulge pertinent information reasonably known to |
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the person; and after reasonable notice of the fact, the insurer has |
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failed promptly and effectively to terminate the employment and |
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status of the person and all the person's influence on management; |
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(13) after demand by the commissioner under Chapter |
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401 or under this chapter, the insurer has failed promptly to make |
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available for examination any of its own property, books, accounts, |
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documents, or other records, or those of any subsidiary or related |
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company within the control of the insurer or of any person having |
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executive authority in the insurer, so far as they pertain to the |
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insurer; |
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(14) without first obtaining the written consent of |
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the commissioner, the insurer has transferred, or attempted to |
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transfer, in a manner contrary to Chapter 823 or any law relating to |
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bulk reinsurance, substantially its entire property or business, or |
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has entered into any transaction the effect of which is to merge, |
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consolidate, or reinsure substantially its entire property or |
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business in or with the property or business of any other person; |
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(15) the insurer or its property has been or is the |
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subject of an application for the appointment of a receiver, |
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trustee, custodian, conservator, sequestrator, or similar |
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fiduciary of the insurer or its property otherwise than as |
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authorized under the insurance laws of this state; |
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(16) within the previous five years, the insurer has |
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wilfully and continuously violated its charter, articles of |
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incorporation or bylaws, any insurance law of this state, or any |
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valid order of the commissioner; |
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(17) the insurer has failed to pay within 60 days after |
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the due date any obligation to any state or political subdivision of |
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a state or any judgment entered in any state, if the court in which |
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the judgment was entered had jurisdiction over the subject matter, |
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except that nonpayment is not a ground until 60 days after any good |
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faith effort by the insurer to contest the obligation has been |
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terminated, whether it is before the commissioner or in the courts; |
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(18) the insurer has systematically engaged in the |
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practice of reaching settlements with and obtaining releases from |
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claimants, and then unreasonably delayed payment, failed to pay the |
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agreed-upon settlements, or systematically attempted to compromise |
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with claimants or other creditors on the ground that it is |
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financially unable to pay its claims or obligations in full; |
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(19) the insurer has failed to file its annual report |
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or other financial report required by statute within the time |
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allowed by law; |
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(20) the board of directors or the holders of a |
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majority of the shares entitled to vote, or a majority of those |
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individuals entitled to the control of those entities specified by |
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Section 443.003, request or consent to rehabilitation or |
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liquidation under this chapter; |
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(21) the insurer does not comply with its domiciliary |
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state's requirements for issuance to it of a certificate of |
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authority, or its certificate of authority has been revoked by its |
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state of domicile; [or] |
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(22) when authorized by department rules; or |
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(23) a court has made a determination described by |
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Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203. |
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SECTION 5. Section 443.058, Insurance Code, is amended to |
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read as follows: |
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Sec. 443.058. ENTRY OF ORDER. If [the commissioner
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establishes] any of the grounds provided in Section 443.057 are |
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established, the receivership court shall grant the petition and |
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issue the order of rehabilitation or liquidation requested in the |
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petition. |
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SECTION 6. Section 443.102, Insurance Code, is amended by |
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adding Subsection (f) to read as follows: |
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(f) The rehabilitator may exercise all powers: |
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(1) possessed on August 31, 2005, by a receiver |
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appointed for the purpose of rehabilitating an insurer; or |
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(2) conferred on a rehabilitator after that date by |
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the laws of this state that are not inconsistent with this chapter. |
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SECTION 7. Subsection (i), Section 443.154, Insurance Code, |
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is amended to read as follows: |
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(i) The liquidator may, subject to Subsection (y) [(x)], |
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acquire, hypothecate, encumber, lease, improve, sell, transfer, |
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abandon, or otherwise dispose of or deal with any property of the |
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estate at its market value or upon terms and conditions that are |
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fair and reasonable. The liquidator also has the power to execute, |
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acknowledge, and deliver any and all deeds, assignments, releases, |
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and other instruments necessary or proper to effectuate any sale of |
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property or other transaction in connection with the liquidation. |
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SECTION 8. Subsection (b), Section 443.211, Insurance Code, |
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is amended to read as follows: |
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(b) Except as provided by Subsection (a), any reinsurance |
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shall be payable to the receiver under a policy reinsured by the |
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assuming insurer on the basis of claims: |
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(1) allowed under Section 443.253; or [and] |
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(2) paid under: |
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(A) Chapter 462, 463, or 2602; or |
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(B) the guaranty associations of other states. |
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SECTION 9. Subsection (e), Section 443.253, Insurance Code, |
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is amended to read as follows: |
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(e) A judgment or order against an insured or the insurer |
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entered after the date of the initial filing of a successful |
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petition for receivership, or within 120 days before the initial |
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filing of the petition, or [and] a judgment or order against an |
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insured or the insurer entered at any time by default or by |
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collusion need not be considered as evidence of liability or of the |
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amount of damages. |
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SECTION 10. Section 443.301, Insurance Code, is amended to |
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read as follows: |
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Sec. 443.301. PRIORITY OF DISTRIBUTION. The priority of |
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payment of distributions on unsecured claims must be in accordance |
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with the order in which each class of claims is set forth in this |
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section. Every claim in each class shall be paid in full, or |
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adequate funds retained for their payment, before the members of |
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the next class receive payment, and all claims within a class must |
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be paid substantially the same percentage of the amount of the |
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claim. Except as provided by Subsections (a)(2), (a)(3), (i), and |
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(k), subclasses may not be established within a class. No claim by |
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a shareholder, policyholder, or other creditor shall be permitted |
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to circumvent the priority classes through the use of equitable |
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remedies. The order of distribution of claims shall be: |
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(a) Class 1. (1) The costs and expenses of administration |
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expressly approved or ratified by the liquidator, including the |
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following: |
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(A) the actual and necessary costs of preserving |
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or recovering the property of the insurer; |
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(B) reasonable compensation for all services |
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rendered on behalf of the administrative supervisor or receiver; |
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(C) any necessary filing fees; |
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(D) the fees and mileage payable to witnesses; |
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(E) unsecured loans obtained by the receiver; and |
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(F) expenses, if any, approved by the |
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rehabilitator of the insurer and incurred in the course of the |
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rehabilitation that are unpaid at the time of the entry of the order |
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of liquidation. |
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(2) The reasonable expenses of a guaranty association, |
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including overhead, salaries and other general administrative |
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expenses allocable to the receivership to include administrative |
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and claims handling expenses and expenses in connection with |
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arrangements for ongoing coverage, other than expenses incurred in |
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the performance of duties under Section 462.002(3), 463.108, |
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463.111, 463.113, 463.353, or 2602.113 or similar duties under the |
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statute governing a similar organization in another state. In the |
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case of the Texas Property and Casualty Insurance Guaranty |
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Association and other property and casualty guaranty associations, |
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the expenses shall include loss adjustment expenses, including |
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adjusting and other expenses and defense and cost containment |
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expenses. In the event that there are insufficient assets to pay |
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all of the costs and expenses of administration under Subsection |
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(a)(1) and the expenses of a guaranty association, the costs and |
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expenses under Subsection (a)(1) shall have priority over the |
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expenses of a guaranty association. In this event, the expenses of |
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a guaranty association shall be paid on a pro rata basis after the |
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payment of costs and expenses under Subsection (a)(1) in full. |
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(3) For purposes of Subsection (a)(1)(E), any |
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unsecured loan obtained by the receiver, unless by its terms it |
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otherwise provides, has priority over all other costs of |
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administration. Absent agreement to the contrary, all claims in |
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this subclass share pro rata. |
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(4) Except as expressly approved by the receiver, any |
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expenses arising from a duty to indemnify the directors, officers, |
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or employees of the insurer are excluded from this class and, if |
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allowed, are Class 5 claims. |
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(b) Class 2. (1) All claims under policies of insurance, |
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including third-party claims, claims under nonassessable policies |
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for unearned premium, claims of obligees and, subject to the |
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discretion of the receiver, completion contractors under surety |
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bonds and surety undertakings other than bail bonds, mortgage or |
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financial guaranties, or other forms of insurance offering |
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protection against investment risk, claims by principals under |
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surety bonds and surety undertakings for wrongful dissipation of |
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collateral by the insurer or its agents, and claims incurred during |
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the extension of coverage provided for in Section 443.152. |
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(2) All other claims incurred in fulfilling the |
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statutory obligations of a guaranty association not included in |
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Class 1, including indemnity payments on covered claims and, in the |
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case of the Life, Accident, Health, and Hospital Service Insurance |
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Guaranty Association or another life and health guaranty |
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association, all claims as a creditor of the impaired or insolvent |
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insurer for all payments of and liabilities incurred on behalf of |
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covered claims or covered obligations of the insurer and for the |
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funds needed to reinsure those obligations with a solvent insurer. |
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(3) Claims for benefits under a health care plan |
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issued by a health maintenance organization. |
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(4) Claims under insurance policies or contracts for |
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benefits issued by an unauthorized insurer. |
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(5) Notwithstanding any provision of this chapter, the |
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following claims are excluded from Class 2 priority: |
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(A) [(1)] obligations of the insolvent insurer |
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arising out of reinsurance contracts; |
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(B) [(2)] obligations, excluding unearned |
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premium claims on policies other than reinsurance agreements, |
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incurred after: |
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(i) [(A)] the expiration date of the |
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insurance policy; |
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(ii) [(B)] the policy has been replaced by |
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the insured or canceled at the insured's request; or |
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(iii) [(C)] the policy has been canceled as |
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provided by this chapter; |
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(C) [(3)] obligations to insurers, insurance |
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pools, or underwriting associations and their claims for |
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contribution, indemnity, or subrogation, equitable or otherwise; |
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(D) [(4)] any claim that is in excess of any |
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applicable limits provided in the insurance policy issued by the |
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insurer; |
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(E) [(5)] any amount accrued as punitive or |
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exemplary damages unless expressly covered under the terms of the |
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policy; |
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(F) [(6)] tort claims of any kind against the |
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insurer and claims against the insurer for bad faith or wrongful |
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settlement practices; and |
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(G) [(7)] claims of the guaranty associations |
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for assessments not paid by the insurer, which must be paid as |
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claims in Class 5. |
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(c) Class 3. Claims of the federal government not included |
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in Class 2 [3]. |
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(d) Class 4. Debts due employees for services or benefits |
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to the extent that the debts do not exceed $5,000 or two months |
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salary, whichever is the lesser, and represent payment for services |
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performed within one year before the entry of the initial order of |
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receivership. This priority is in lieu of any other similar |
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priority that may be authorized by law as to wages or compensation |
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of employees. |
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(e) Class 5. Claims of other unsecured creditors not |
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included in Classes 1 through 4, including claims under reinsurance |
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contracts, claims of guaranty associations for assessments not paid |
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by the insurer, and other claims excluded from Class 2. |
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(f) Class 6. Claims of any state or local governments, |
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except those specifically classified elsewhere in this section. |
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Claims of attorneys for fees and expenses owed them by an insurer |
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for services rendered in opposing a formal delinquency proceeding. |
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In order to prove the claim, the claimant must show that the insurer |
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that is the subject of the delinquency proceeding incurred the fees |
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and expenses based on its best knowledge, information, and belief, |
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formed after reasonable inquiry, indicating opposition was in the |
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best interests of the insurer, was well grounded in fact, and was |
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warranted by existing law or a good faith argument for the |
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extension, modification, or reversal of existing law, and that |
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opposition was not pursued for any improper purpose, such as to |
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harass or to cause unnecessary delay or needless increase in the |
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cost of the litigation. |
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(g) Class 7. Claims of any state or local government for a |
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penalty or forfeiture, but only to the extent of the pecuniary loss |
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sustained from the act, transaction, or proceeding out of which the |
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penalty or forfeiture arose, with reasonable and actual costs |
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occasioned thereby. The balance of the claims must be treated as |
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Class 9 claims under Subsection (i). |
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(h) Class 8. Except as provided in Sections 443.251(b) and |
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(d), late filed claims that would otherwise be classified in |
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Classes 2 through 7. |
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(i) Class 9. Surplus notes, capital notes or contribution |
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notes or similar obligations, premium refunds on assessable |
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policies, and any other claims specifically assigned to this class. |
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Claims in this class are subject to any subordination agreements |
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related to other claims in this class that existed before the entry |
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of the liquidation order. |
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(j) Class 10. Interest on allowed claims of Classes 1 |
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through 9, according to the terms of a plan proposed by the |
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liquidator and approved by the receivership court. |
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(k) Class 11. Claims of shareholders or other owners |
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arising out of their capacity as shareholders or other owners, or |
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any other capacity, except as they may be qualified in Class 2, 5, |
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or 10. Claims in this class are subject to any subordination |
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agreements related to other claims in this class that existed |
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before the entry of the liquidation order. |
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SECTION 11. Subsections (a) and (b), Section 443.303, |
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Insurance Code, are amended to read as follows: |
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(a) For purposes of this section, "distributable assets" |
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means all general assets of the liquidation estate less: |
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(1) amounts reserved, to the extent necessary and |
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appropriate, for the entire Section 443.301(a) expenses of the |
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liquidation through and after its closure; and |
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(2) to the extent necessary and appropriate, reserves |
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for distributions on claims other than those of the guaranty |
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associations falling within the priority classes of claims |
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established in Section 443.301(b) [443.301(c)]. |
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(b) Early access payments to guaranty associations must be |
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made as soon as possible after the entry of a liquidation order and |
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as frequently as possible after the entry of the order, but at least |
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annually if distributable assets are available to be distributed to |
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the guaranty associations, and must be in amounts consistent with |
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this section. Amounts advanced to an affected guaranty association |
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pursuant to this section shall be accounted for as advances against |
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distributions to be made under Section 443.302. Where sufficient |
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distributable assets are available, amounts advanced are not |
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limited to the claims and expenses paid to date by the guaranty |
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associations; however, the liquidator may not distribute |
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distributable assets to the guaranty associations in excess of the |
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anticipated entire claims of the guaranty associations falling |
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within the priority classes of claims established in Sections |
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443.301(a) and (b) [443.301(b) and (c)]. |
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SECTION 12. The changes in law made by this Act apply to a |
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receivership proceeding pending on the effective date of this Act |
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or initiated on or after the effective date of this Act. |
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SECTION 13. This Act takes effect September 1, 2011. |