By: Carona S.B. No. 1433
 
  (Smithee)
 
   
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to insurer receivership.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subsections (a) and (e), Section 443.005,
  Insurance Code, are amended to read as follows:
         (a)  Except as authorized by Section 203(e)(3), Pub. L. No.
  111-203, a [A] delinquency proceeding may not be commenced under
  this chapter by a person other than the commissioner, and a court
  does not have jurisdiction to entertain, hear, or determine any
  delinquency proceeding commenced by any other person.
         (e)  If, on motion of any party, the receivership court finds
  that any action, as a matter of substantial justice, should be tried
  in a forum outside this state, the receivership court may enter an
  appropriate order to stay further proceedings on the action in this
  state.  Except as to claims against the estate, nothing in this
  chapter deprives a party of any contractual right to pursue
  arbitration.  A party in arbitration may bring a claim or
  counterclaim against the estate, but the claim or counterclaim is
  subject to this chapter [Section 443.209].
         SECTION 2.  Section 443.0135, Insurance Code, is amended by
  amending Subsection (a) and adding Subsection (c) to read as
  follows:
         (a)  Except as provided by Subsection (c), the [The] receiver
  shall use a competitive bidding process in the selection of any
  special deputies appointed under Section 443.102 or 443.154.  The
  process must include procedures to promote the participation of
  historically underutilized businesses that have been certified by
  the comptroller under Section 2161.061, Government Code.
         (c)  In the event of an emergency, the receiver may appoint a
  special deputy without soliciting competitive bids.  For the
  purposes of this subsection, an emergency exists if:
               (1)  a court has made a determination described by
  Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203; or
               (2)  the receiver concludes that the competitive
  bidding process would delay the appointment of a special deputy and
  that the delay could be hazardous to the insurer's policyholders or
  creditors or the general public.
         SECTION 3.  Subsection (a), Section 443.052, Insurance Code,
  is amended to read as follows:
         (a)  Except as authorized by Section 203(e)(3), Pub. L. No.
  111-203, any [Any] formal delinquency proceeding against a person
  shall be commenced by filing a petition in the name of the
  commissioner or department.
         SECTION 4.  Section 443.057, Insurance Code, is amended to
  read as follows:
         Sec. 443.057.  GROUNDS FOR CONSERVATION, REHABILITATION, OR
  LIQUIDATION.  A [The commissioner may file with a court in this
  state a] petition with respect to an insurer domiciled in this state
  or an unauthorized insurer for an order of rehabilitation or
  liquidation may be filed on any one or more of the following
  grounds:
               (1)  the insurer is impaired;
               (2)  the insurer is insolvent;
               (3)  the insurer is about to become insolvent, with
  "about to become insolvent" being defined as reasonably anticipated
  that the insurer will not have liquid assets to meet its next 90
  days' current obligations;
               (4)  the insurer has neglected or refused to comply
  with an order of the commissioner to make good within the time
  prescribed by law any deficiency, whenever its capital and minimum
  required surplus, if a stock company, or its surplus, if a company
  other than stock, has become impaired;
               (5)  the insurer, its parent company, its subsidiaries,
  or its affiliates have converted, wasted, or concealed property of
  the insurer or have otherwise improperly disposed of, dissipated,
  used, released, transferred, sold, assigned, hypothecated, or
  removed the property of the insurer;
               (6)  the insurer is in a condition such that it could
  not meet the requirements for organization and authorization as
  required by law, except as to the amount of the original surplus
  required of a stock company under Title 6, and except as to the
  amount of the surplus required of a company other than a stock
  company in excess of the minimum surplus required to be maintained;
               (7)  the insurer, its parent company, its subsidiaries,
  or its affiliates have concealed, removed, altered, destroyed, or
  failed to establish and maintain books, records, documents,
  accounts, vouchers, and other pertinent material adequate for the
  determination of the financial condition of the insurer by
  examination under Chapter 401 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
  Section 404.003 or Chapter 441, 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 Subchapter A, Chapter 404, 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 Chapter
  401 or under this chapter, the insurer has failed promptly to make
  available for examination any of its own property, books, accounts,
  documents, or other records, or those of any subsidiary or related
  company within the control of the insurer or of any person having
  executive authority in the insurer, so far as they pertain to the
  insurer;
               (14)  without first obtaining the written consent of
  the commissioner, the insurer has transferred, or attempted to
  transfer, in a manner contrary to Chapter 823 or any law relating to
  bulk reinsurance, substantially its entire property or business, or
  has entered into any transaction the effect of which is to merge,
  consolidate, or reinsure substantially its entire property or
  business in or with the property or business of any other person;
               (15)  the insurer or its property has been or is the
  subject of an application for the appointment of a receiver,
  trustee, custodian, conservator, sequestrator, or similar
  fiduciary of the insurer or its property otherwise than as
  authorized under the insurance laws of this state;
               (16)  within the previous five years, the insurer has
  wilfully and continuously violated its charter, articles of
  incorporation or bylaws, any insurance law of this state, or any
  valid order of the commissioner;
               (17)  the insurer has failed to pay within 60 days after
  the due date any obligation to any state or political subdivision of
  a state or any judgment entered in any state, if the court in which
  the judgment was entered had jurisdiction over the subject matter,
  except that nonpayment is not a ground until 60 days after any good
  faith effort by the insurer to contest the obligation has been
  terminated, whether it is before the commissioner or in the courts;
               (18)  the insurer has systematically engaged in the
  practice of reaching settlements with and obtaining releases from
  claimants, and then unreasonably delayed payment, failed to pay the
  agreed-upon settlements, or systematically attempted to compromise
  with claimants or other creditors on the ground that it is
  financially unable to pay its claims or obligations in full;
               (19)  the insurer has failed to file its annual report
  or other financial report required by statute within the time
  allowed by law;
               (20)  the board of directors or the holders of a
  majority of the shares entitled to vote, or a majority of those
  individuals entitled to the control of those entities specified by
  Section 443.003, 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; or
               (23)  a court has made a determination described by
  Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203.
         SECTION 5.  Section 443.058, Insurance Code, is amended to
  read as follows:
         Sec. 443.058.  ENTRY OF ORDER. If [the commissioner
  establishes] any of the grounds provided in Section 443.057 are
  established, the receivership court shall grant the petition and
  issue the order of rehabilitation or liquidation requested in the
  petition.
         SECTION 6.  Section 443.102, Insurance Code, is amended by
  adding Subsection (f) to read as follows:
         (f)  The rehabilitator may exercise all powers:
               (1)  possessed on August 31, 2005, by a receiver
  appointed for the purpose of rehabilitating an insurer; or
               (2)  conferred on a rehabilitator after that date by
  the laws of this state that are not inconsistent with this chapter.
         SECTION 7.  Subsection (i), Section 443.154, Insurance Code,
  is amended to read as follows:
         (i)  The liquidator may, subject to Subsection (y) [(x)],
  acquire, hypothecate, encumber, lease, improve, sell, transfer,
  abandon, or otherwise dispose of or deal with any property of the
  estate at its market value or upon terms and conditions that are
  fair and reasonable.  The liquidator also has the power to execute,
  acknowledge, and deliver any and all deeds, assignments, releases,
  and other instruments necessary or proper to effectuate any sale of
  property or other transaction in connection with the liquidation.
         SECTION 8.  Subsection (b), Section 443.211, Insurance Code,
  is amended to read as follows:
         (b)  Except as provided by Subsection (a), any reinsurance
  shall be payable to the receiver under a policy reinsured by the
  assuming insurer on the basis of claims:
               (1)  allowed under Section 443.253; or [and]
               (2)  paid under:
                     (A)  Chapter 462, 463, or 2602; or
                     (B)  the guaranty associations of other states.
         SECTION 9.  Subsection (e), Section 443.253, Insurance Code,
  is amended to read as follows:
         (e)  A judgment or order against an insured or the insurer
  entered after the date of the initial filing of a successful
  petition for receivership, or within 120 days before the initial
  filing of the petition, or [and] a judgment or order against an
  insured or the insurer entered at any time by default or by
  collusion need not be considered as evidence of liability or of the
  amount of damages.
         SECTION 10.  Section 443.301, Insurance Code, is amended to
  read as follows:
         Sec. 443.301.  PRIORITY OF DISTRIBUTION. The priority of
  payment of distributions on unsecured claims must be in accordance
  with the order in which each class of claims is set forth in this
  section.  Every claim in each class shall be paid in full, or
  adequate funds retained for their payment, before the members of
  the next class receive payment, and all claims within a class must
  be paid substantially the same percentage of the amount of the
  claim.  Except as provided by Subsections (a)(2), (a)(3), (i), and
  (k), subclasses may not be established within a class.  No claim by
  a shareholder, policyholder, or other creditor shall be permitted
  to circumvent the priority classes through the use of equitable
  remedies.  The order of distribution of claims shall be:
         (a)  Class 1.  (1)  The costs and expenses of administration
  expressly approved or ratified by the liquidator, including the
  following:
                     (A)  the actual and necessary costs of preserving
  or recovering the property of the insurer;
                     (B)  reasonable compensation for all services
  rendered on behalf of the administrative supervisor or receiver;
                     (C)  any necessary filing fees;
                     (D)  the fees and mileage payable to witnesses;
                     (E)  unsecured loans obtained by the receiver; and
                     (F)  expenses, if any, approved by the
  rehabilitator of the insurer and incurred in the course of the
  rehabilitation that are unpaid at the time of the entry of the order
  of liquidation.
               (2)  The reasonable expenses of a guaranty association,
  including overhead, salaries and other general administrative
  expenses allocable to the receivership to include administrative
  and claims handling expenses and expenses in connection with
  arrangements for ongoing coverage, other than expenses incurred in
  the performance of duties under Section 462.002(3), 463.108,
  463.111, 463.113, 463.353, or 2602.113 or similar duties under the
  statute governing a similar organization in another state.  In the
  case of the Texas Property and Casualty Insurance Guaranty
  Association and other property and casualty guaranty associations,
  the expenses shall include loss adjustment expenses, including
  adjusting and other expenses and defense and cost containment
  expenses.  In the event that there are insufficient assets to pay
  all of the costs and expenses of administration under Subsection
  (a)(1) and the expenses of a guaranty association, the costs and
  expenses under Subsection (a)(1) shall have priority over the
  expenses of a guaranty association.  In this event, the expenses of
  a guaranty association shall be paid on a pro rata basis after the
  payment of costs and expenses under Subsection (a)(1) in full.
               (3)  For purposes of Subsection (a)(1)(E), any
  unsecured loan obtained by the receiver, unless by its terms it
  otherwise provides, has priority over all other costs of
  administration.  Absent agreement to the contrary, all claims in
  this subclass share pro rata.
               (4)  Except as expressly approved by the receiver, any
  expenses arising from a duty to indemnify the directors, officers,
  or employees of the insurer are excluded from this class and, if
  allowed, are Class 5 claims.
         (b)  Class 2.  (1)  All claims under policies of insurance,
  including third-party claims, claims under nonassessable policies
  for unearned premium, claims of obligees and, subject to the
  discretion of the receiver, completion contractors under surety
  bonds and surety undertakings other than bail bonds, mortgage or
  financial guaranties, or other forms of insurance offering
  protection against investment risk, claims by principals under
  surety bonds and surety undertakings for wrongful dissipation of
  collateral by the insurer or its agents, and claims incurred during
  the extension of coverage provided for in Section 443.152.
               (2)  All other claims incurred in fulfilling the
  statutory obligations of a guaranty association not included in
  Class 1, including indemnity payments on covered claims and, in the
  case of the Life, Accident, Health, and Hospital Service Insurance
  Guaranty Association or another life and health guaranty
  association, all claims as a creditor of the impaired or insolvent
  insurer for all payments of and liabilities incurred on behalf of
  covered claims or covered obligations of the insurer and for the
  funds needed to reinsure those obligations with a solvent insurer.
               (3)  Claims for benefits under a health care plan
  issued by a health maintenance organization.
               (4)  Claims under insurance policies or contracts for
  benefits issued by an unauthorized insurer.
               (5)  Notwithstanding any provision of this chapter, the
  following claims are excluded from Class 2 priority:
                     (A) [(1)]  obligations of the insolvent insurer
  arising out of reinsurance contracts;
                     (B) [(2)]  obligations, excluding unearned
  premium claims on policies other than reinsurance agreements,
  incurred after:
                           (i) [(A)]  the expiration date of the
  insurance policy;
                           (ii) [(B)]  the policy has been replaced by
  the insured or canceled at the insured's request; or
                           (iii) [(C)]  the policy has been canceled as
  provided by this chapter;
                     (C) [(3)]  obligations to insurers, insurance
  pools, or underwriting associations and their claims for
  contribution, indemnity, or subrogation, equitable or otherwise;
                     (D) [(4)]  any claim that is in excess of any
  applicable limits provided in the insurance policy issued by the
  insurer;
                     (E) [(5)]  any amount accrued as punitive or
  exemplary damages unless expressly covered under the terms of the
  policy;
                     (F) [(6)]  tort claims of any kind against the
  insurer and claims against the insurer for bad faith or wrongful
  settlement practices; and
                     (G) [(7)]  claims of the guaranty associations
  for assessments not paid by the insurer, which must be paid as
  claims in Class 5.
         (c)  Class 3.  Claims of the federal government not included
  in Class 2 [3].
         (d)  Class 4.  Debts due employees for services or benefits
  to the extent that the debts do not exceed $5,000 or two months
  salary, whichever is the lesser, and represent payment for services
  performed within one year before the entry of the initial order of
  receivership.  This priority is in lieu of any other similar
  priority that may be authorized by law as to wages or compensation
  of employees.
         (e)  Class 5.  Claims of other unsecured creditors not
  included in Classes 1 through 4, including claims under reinsurance
  contracts, claims of guaranty associations for assessments not paid
  by the insurer, and other claims excluded from Class 2.
         (f)  Class 6.  Claims of any state or local governments,
  except those specifically classified elsewhere in this section.  
  Claims of attorneys for fees and expenses owed them by an insurer
  for services rendered in opposing a formal delinquency proceeding.  
  In order to prove the claim, the claimant must show that the insurer
  that is the subject of the delinquency proceeding incurred the fees
  and expenses based on its best knowledge, information, and belief,
  formed after reasonable inquiry, indicating opposition was in the
  best interests of the insurer, was well grounded in fact, and was
  warranted by existing law or a good faith argument for the
  extension, modification, or reversal of existing law, and that
  opposition was not pursued for any improper purpose, such as to
  harass or to cause unnecessary delay or needless increase in the
  cost of the litigation.
         (g)  Class 7.  Claims of any state or local government for a
  penalty or forfeiture, but only to the extent of the pecuniary loss
  sustained from the act, transaction, or proceeding out of which the
  penalty or forfeiture arose, with reasonable and actual costs
  occasioned thereby.  The balance of the claims must be treated as
  Class 9 claims under Subsection (i).
         (h)  Class 8.  Except as provided in Sections 443.251(b) and
  (d), late filed claims that would otherwise be classified in
  Classes 2 through 7.
         (i)  Class 9.  Surplus notes, capital notes or contribution
  notes or similar obligations, premium refunds on assessable
  policies, and any other claims specifically assigned to this class.  
  Claims in this class are subject to any subordination agreements
  related to other claims in this class that existed before the entry
  of the liquidation order.
         (j)  Class 10.  Interest on allowed claims of Classes 1
  through 9, according to the terms of a plan proposed by the
  liquidator and approved by the receivership court.
         (k)  Class 11.  Claims of shareholders or other owners
  arising out of their capacity as shareholders or other owners, or
  any other capacity, except as they may be qualified in Class 2, 5,
  or 10.  Claims in this class are subject to any subordination
  agreements related to other claims in this class that existed
  before the entry of the liquidation order.
         SECTION 11.  Subsections (a) and (b), Section 443.303,
  Insurance Code, are amended to read as follows:
         (a)  For purposes of this section, "distributable assets"
  means all general assets of the liquidation estate less:
               (1)  amounts reserved, to the extent necessary and
  appropriate, for the entire Section 443.301(a) expenses of the
  liquidation through and after its closure; and
               (2)  to the extent necessary and appropriate, reserves
  for distributions on claims other than those of the guaranty
  associations falling within the priority classes of claims
  established in Section 443.301(b) [443.301(c)].
         (b)  Early access payments to guaranty associations must be
  made as soon as possible after the entry of a liquidation order and
  as frequently as possible after the entry of the order, but at least
  annually if distributable assets are available to be distributed to
  the guaranty associations, and must be in amounts consistent with
  this section.  Amounts advanced to an affected guaranty association
  pursuant to this section shall be accounted for as advances against
  distributions to be made under Section 443.302.  Where sufficient
  distributable assets are available, amounts advanced are not
  limited to the claims and expenses paid to date by the guaranty
  associations; however, the liquidator may not distribute
  distributable assets to the guaranty associations in excess of the
  anticipated entire claims of the guaranty associations falling
  within the priority classes of claims established in Sections
  443.301(a) and (b) [443.301(b) and (c)].
         SECTION 12.  The changes in law made by this Act apply to a
  receivership proceeding pending on the effective date of this Act
  or initiated on or after the effective date of this Act.
         SECTION 13.  This Act takes effect September 1, 2011.