A N A C T
RELATING TO INSURANCE
It is enacted by the General Assembly as follows:
SECTION 1. Section 27-4-0.1 of the General Laws in Chapter 27-4 entitled "Life Insurance Policies and Reserves" is hereby amended to read as follows:
27-4-0.1. Definitions -- (a) "Annuities" means all agreements to make periodic payments for a period certain or where the making or continuance of all or some of a series of the payments, or the amount of any payment, depends on the continuance of human life, except payments made in connection with a life insurance policy. Amounts paid the insured to provide annuities and proceeds applied under optional modes of settlement or under dividend options may be allocated by the insurer to one or more separate accounts pursuant to provisions of the annuity contract.
(b) "Life insurance" means every insurance upon the lives of human beings and every insurance appertaining thereto, including the granting of endowment benefits, additional benefits in the event of death by accident, additional benefits to safeguard the contract from lapse, accelerated payments of part or all of the death benefit, or a special surrender value upon diagnosis of terminal illness, defined as a life expectancy of twelve (12) months or less, or of a medical condition requiring extraordinary medical care or treatment regardless of life expectancy, or a special surrender value upon total and permanent disability of the insured, and optional modes of settlement of proceeds. Amounts paid the insurer for life insurance and proceeds applied under optional modes of settlement or under dividend options may be allocated by the insurer to one or more separate accounts pursuant to provisions contained in the policy.
(c)(1) "Funding agreements" mean agreements whereby an insurer may accept and accumulate funds and make one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies. Funding agreements do not constitute annuities as defined in subsection (a) of this section or life insurance as defined in subsection (b) of this section;
(2) Any insurer authorized to issue annuity contracts in Rhode Island may issue one or more funding agreements, in fixed or variable dollar amounts or in both. The issuance of a funding agreement under this section is deemed to be doing insurance business. Funding agreements may be issued to fund:
(i) benefits under any employee benefit plan as defined in the federal Employee Retirement Income Security Act of 1974, 29 U.S.C. section 1002;
(ii) the activities of any organization exempt from taxation under section 501(c) of the Internal Revenue Code or any similar organization in any foreign country;
(iii) any program of the government of the United States, the government of any state or political subdivision of such state, or of a foreign country, or any agency or instrumentality of any such government, political subdivision or foreign country;
(iv) any agreement providing for periodic payments in satisfaction of a claim; or
(v) any program of any institution that has assets in excess of twenty-five million dollars ($25,000,000).
(3) A funding agreement shall be for a total amount of not less than one million dollars ($1,000,000). An amount under a funding agreement shall not be guaranteed or credited except upon reasonable assumptions as to investment income and expenses and on a basis equitable to all holders of funding agreement of a given class. Such funding agreements shall not provide for payments to or by the insurer based on mortality or morbidity contingencies.
(4) Amounts paid to the insurer under funding agreements may be allocated by the insurer to its general account or to one or more separate accounts pursuant to section 27-32-1.
(5) A funding agreement is a Class 3 claim under section 27-14.3-46.
(6) Notwithstanding any provision in Title 27 to the contrary, no funding agreement or portion thereof, except to the extent such funding agreement may be considered an unallocated annuity contract, in accordance with the definition found in section 27-34.3-5, and except to the extent such funding agreement or portion thereof has been issued to or in connection with a specific employee, union or association of natural persons benefit plan, not protected under the federal Pension Benefit Guaranty Corporation, or a government lottery, and except to the extent such funding agreement or portion thereof is not otherwise limited or excluded under section 27-34.3-3(B)(2), shall qualify as a policy or contract as to which coverage is provided pursuant to chapter 34.3 of title 27.
(7) The Commissioner shall have the authority to regulate the sale and issuance of funding agreements and to promulgate regulations governing the sale and issuance of funding agreements.
SECTION 2. Section 27-14.3-46 of the General Laws in Chapter 27-14.3 entitled "Insurers' Rehabilitation and Liquidation Act" is hereby amended to read as follows:
27-14.3-46. Priority of distribution - - (a) The priority of distribution of claims from the insurer's estate shall be in accordance with the order in which each class of claims is herein set forth. Every claim in each class shall be paid in full or adequate funds retained for the payment before the members of the next class receive any payment. No subclasses shall be established within any 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:
(1) Class 1. - The costs and expenses of administration during rehabilitation and liquidation, including, but not limited to, the following:
(i) The actual and necessary costs of preserving or recovering the assets of the insurer;
(ii) Compensation for all authorized services rendered in the rehabilitation and liquidation;
(iii) Any necessary filing fees;
(iv) The fees and mileage payable to witnesses;
(v) Authorized reasonable attorney's fees and other professional services rendered in the rehabilitation and liquidation; and
(vi) The reasonable expenses of a guaranty association or foreign guaranty association for administrative costs and unallocated loss adjustment expenses;
(2) Class 2. - Reasonable compensation to employees for services performed to the extent that they do not exceed two (2) months of monetary compensation and represent payment for services performed within one year before the filing of the petition for liquidation or, if rehabilitation preceded liquidation, within one year before the filing of the petition for rehabilitation. Principal officers and directors shall not be entitled to the benefit of this priority except as otherwise approved by the liquidator and the court. This priority shall be in lieu of any other similar priority which may be authorized by law as to wages or compensation of employees;
(3) Class 3. - All claims arising from and within the coverage of policies including the claims of the federal or any state or local government for losses incurred, including third party claims, and all claims of guaranty association or foreign guaranty association including its unearned premium claims. All claims under life insurance and annuity policies, and funding agreements, whether for death proceeds, annuity proceeds, or investment values shall be treated as loss claims. That portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, shall not be included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligation of support or by way of succession at death or as proceeds of life insurance, or as gratuities. No payment by an employer to his or her employee shall be treated as a gratuity;
(4) Class 4. - Claims under nonassessable policies for unearned premium or other premium refunds;
(5) Class 5. - Claims of the federal or any state or local government except those under Class 3 above. Claims, including those of any governmental body for a penalty or forfeiture, shall be allowed in this class 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 remainder of those claims shall be postponed to the class of claims under subdivision (8).
(6) Class 6. - Claims filed late or any other claims other than claims under subdivisions (7) and (8);
(7) Class 7.. - Surplus or contribution notes, or similar obligations, premium refunds on assessable policies, claims of general creditors, including claims or insurance pools and associations, claims arising out of reinsurance agreements, including premium claims, claims of other insurers for subrogation, and claims of insurers for payments and settlements under uninsured and underinsured motorist coverages. Payments to members of domestic mutual insurance companies shall be limited in accordance with law; and
(8) Class 8.. - The claims of shareholders or other owners in their capacity as shareholders.
SECTION 3. Section 27-32-1 of the General Laws in Chapter 27-32 entitled "Pension, Profit Sharing or Annuity Plans" is hereby amended to read as follows:
27-32-1. Separate accounts authorized -- (a) Any domestic life insurance company may establish one or more separate accounts, and may allocate to the account or accounts any amounts paid to it which are to be applied under the terms of an individual or group contract or agreement to provide annuity or life insurance benefits, or under the terms of a funding agreement, which contract or agreement or funding agreement may also provide other benefits incidental thereto, payable in fixed or in variable dollar amounts or in both.
(b) Notwithstanding any other provision of law, any domestic life insurance company which establishes one or more separate accounts as provided herein may provide to the holders of interests in any separate account voting rights with respect to the management of the separate account and the investment of assets therein, may establish for the separate account a committee, board, or other body, the members of which (i) may be elected solely by holders having voting rights, and (ii) may or may not be otherwise affiliated with the life insurance company, and may provide for compliance with any applicable state and federal law in order that contracts assigned to separate accounts may be lawfully sold or offered for sale. If and to the extent so provided in the applicable agreement, the assets in a separate account shall not be chargeable with liabilities arising out of any other business of the company.
SECTION 4. This act shall take effect upon passage.