Chapter 396

2003 -- S 1123 AS AMENDED

Enacted 07/31/03

A N A C T

RELATING TO INSURERS' REHABILITATION AND LIQUIDATION ACT

Introduced By: Senator William A. Walaska

Date Introduced: June 05, 2003

It is enacted by the General Assembly as follows:

     SECTION 1. Sections 27-14.3-39, 27-14.3-40 and 27-14.3-46 of the General Laws in

Chapter 27-14.3 entitled "Insurers' Rehabilitation and Liquidation Act" are hereby amended to

read as follows:

27-14.3-39. Filing of claims. -- (a) Proof of all claims shall be filed with the liquidator in

the form required by section 27-14.3-40 on or before the last day for filing specified in the notice

required under section 27-14.3-26, except that proof of claims for cash surrender values or other

investment values in life insurance and annuities need not be filed unless the liquidator expressly

so requires this. Provided, however, only upon the application of the liquidator, the court may

allow alternative procedures and requirements for the filing of proofs of claim or for allowing or

proving claims. Upon the application, if the court dispenses with the requirements of filing a

proof of claim by a person, class, or group of persons, a proof of claim for those such persons

shall be deemed as having been filed for all purposes, including the application of guaranty

association or foreign guaranty association laws.

      (b) The liquidator may permit a claimant making a late filing to share in distributions,

whether past or future, as if he or she the claimant were not late, to the extent that any the

payment will not prejudice the orderly administration of the liquidation, under the following

circumstances:

      (1) The existence of the claim was not known to the claimant and that he or she filed his

or her the claimant filed the claim as promptly after this thereafter as reasonably possible after

learning of it;

      (2) A transfer to a creditor was avoided under sections 27-14.3-30 -- 27-14.3-32, or was

voluntarily surrendered under section 27-14.3-33, and that the filing satisfies the conditions of

section 27-14.3-33; and

      (3) That The valuation under section 27-14.3-45 of security held by a secured creditor

shows a deficiency, which is filed within thirty (30) days after the valuation.

(c) The liquidator shall permit late filed claims to share in distributions, whether past or

future, as if they were not late, if the claims are claims of a guaranty association or foreign

guaranty association for reimbursement of covered claims paid or expenses incurred, or both,

subsequent to the last day for filing where the payments were made and expenses incurred as

provided by law.

(d)(c) The liquidator may consider any claim filed late which is not covered by

subsection (b) of this section, and permit the claimant it to receive distributions which are

subsequently declared on any claims of the same or lower priority if the payment does not

prejudice the orderly administration of the liquidation. The late filing claimant shall receive, at

each distribution, the same percentage of the amount allowed on his or her the claim as is then

being paid to claimants of any lower priority. This shall continue until his or her the claim has

been paid in full.

27-14.3-40. Proof of claim. -- (a) Proof of claim shall consist of a statement signed by

the claimant that includes all of the following that are applicable:

      (1) The particulars of the claim including the consideration given for it;

      (2) The identity and amount of the security on the claim;

      (3) The payments made on the debt, if any;

      (4) That the sum claimed is justly owing and that there is no setoff, counterclaim, or

defense to the claim;

      (5) Any right of priority of payment or other specific right asserted by the claimants;

      (6) A copy of the written instrument which is the foundation of the claim; and

      (7) The name and address of the claimant and the attorney who represents him or her the

claimant, if any. ; and

(8) The social security or federal employer identification number of the claimant.

      (b) No claim needs to be considered or allowed if it does not contain all of the

information in subsection (a) of this section which may be applicable. The liquidator may require

that a prescribed form be used, and may require that other information and documents be

included.

      (c) At any time the liquidator may request the claimant to present information or

evidence supplementary to that required under subsection (a) of this section and may take

testimony under oath, require production of affidavits or depositions, or otherwise obtain

additional information or evidence.

      (d) No judgment or order against an insured or the insurer entered after the date of filing

of a successful petition for liquidation, and no judgment or order against an insured or the insurer

entered at any time by default or by collusion need collusion, needs to be considered as evidence

of liability or of quantum of damages. No judgment or order against an insured or the insurer

entered within four (4) months before the filing of the petition needs to be considered as evidence

of liability or of the quantum of damages.

      (e) All claims of a guaranty association or foreign A guaranty association shall be in the

form and contain the substantiation as may be agreed to by permitted to file a single omnibus

proof of claim for all claims of the association in connection with payment of claims of the

insolvent insurer. The omnibus proof of claim may be periodically updated by the association,

and the association may be required to submit a reasonable amount of documentation in support

of the claim. and the liquidator.

27-14.3-46. Priority of distribution. -- 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 set forth in

this section. Every claim in each class shall be paid in full or adequate funds retained for for such the payment before the members of the next class receive any payment. No subclasses shall be

established within any class. Once such funds are retained by the liquidator and approved by the

court, the insurer’s estate shall have no further liability to members of that class except to the

extent of the retained funds and any other undistributed funds. No subclasses shall be established

within any class except as provided in section 27-14.3-25(12). 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: expressly approved by the receiver,

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 conservation rehabilitation

and or liquidation;

      (iii) Any necessary filing fees;

      (iv) The fees and mileage payable to witnesses; and

      (v) Authorized reasonable attorney's fees and other professional services rendered in the

conservation rehabilitation and or 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 approved by the liquidator and the court. This priority shall be in lieu of any other

similar priority that may be authorized by law as to wages or compensation of employees; The

administrative expenses of guaranty associations. For purposes of this section these expenses

shall be the reasonable expenses incurred by guaranty associations where the expenses are not

payments or expenses which are required to be incurred as direct policy benefits in fulfillment of

the terms of the insurance contract or policy, and that are of the type and nature that, but for the

activities of the guaranty association otherwise would have been incurred by the receiver,

including, but not limited to, evaluations of policy coverage, activities involved in the adjustment

and settlement of claims under policies, including those of in-house or outside adjusters, and the

reasonable expenses incurred in connection with the arrangements for ongoing coverage through

transfer to other insurers, policy exchanges or maintaining policies in force. The receiver may in

his or her sole discretion approve as an administrative expense under this section any other

reasonable expenses of the guaranty association if the receiver finds:

(i) The expenses are not expenses required to be paid or incurred as direct policy benefits

by the terms of the policy; and

(ii) The expenses were incurred in furtherance of activities that provided a material

economic benefit to the estate as a whole, irrespective of whether the activities resulted in

additional benefits to covered claimants. The court shall approve such expenses unless it finds the

receiver abused his or her discretion in approving the expenses.

If the receiver determines that the assets of the estate will be sufficient to pay all Class I

claims in full, Class 2 claims shall be paid currently, provided that the liquidator shall secure from

each of the associations receiving disbursements pursuant to this section and agreement to return

to the liquidator such disbursements, together with investment income actually earned on such

disbursements, as may be required to pay Class 1 claims. No bond shall be required of any such

association.

      (3) Class 3. - All claims arising from and within the coverage of under policies including

the claims of the federal or any state or local government for losses incurred, (“loss claims”)

including third party claims, claims for unearned premiums, and all claims of guaranty

association or foreign guaranty association including its unearned premium claims for reasonable

expenses other than those included in Class 2. All claims under life insurance, and health

insurance and annuity policies, and funding agreements, whether for death proceeds, health

benefits, 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;

Notwithstanding the foregoing, the following claims shall be excluded from Class 3

priority:

(i) Obligations of the insolvent insurer arising out of reinsurance contracts;

(ii) Obligations incurred after the expiration date of the insurance policy or after the

policy has been replaced by the insured or canceled at the insured’s request or after the policy has

been canceled as provided in this act;

(iii) Obligations to insurers, insurance pools or underwriting associations and their claims

for contribution, indemnity or subrogation, equitable or otherwise;

(iv) Any claim which is in excess of any applicable limits provided in the insurance

policy issued by the insolvent insurer;

(v) Any amount accrued as punitive or exemplary damages unless expressly covered

under the terms of the policy; and

(vi) Tort claims of any kind against the insurer, and claims against the insurer for bad

faith or wrongful settlement practices.

      (4) Class 4. - Claims under nonassessable policies for unearned premium or other

premium refunds; of the federal government other than those claims included in Class 3.

      (5) Class 5. - Claims of the federal or any state or local government except those under

Class 3 in subdivision (3) of this section. 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 by it. The remainder of those claims shall be

postponed to the class of claims under subdivision (8) of this section.

Debts due to employees for services, benefits, contractual or otherwise due arising out of

such 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 six (6) months 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.

      (6) Class 6. - Claims filed late or any other claims other than claims under subdivisions

(7) and (8) of this section; of any person, including claims of state or local governments, except

those specifically classified elsewhere in this section. Claims of attorneys for fees and expenses

owed them by a person for services rendered in opposing a formal delinquency proceeding. In

order to prove the claim, the claimant must show that the insurer which is the subject of the

delinquency proceeding incurred such fees and expenses based on its best knowledge,

information and belief, formed after reasonable inquiry indicating opposition was in the best

interests of the person, 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.

      (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 coverage. Payments to members of domestic mutual

insurance companies shall be limited in accordance with law; and 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 remainder of such claims shall be postponed to the class of

claims under subdivision 8.

      (8) Class 8. - The claims of shareholders or other owners in their capacity as

shareholders. Surplus or contribution notes or similar obligations, premium refunds on assessable

policies, interest on claims of Classes 1 through 7 and any other claims specifically subordinated

to this class.

(9) Class 9. Claims of shareholders or other owners arising out of their capacity as

shareholders or other owners, or any other capacity except as they may be qualified in Class 3 or

6 above.

If any claimant of this state, another state or foreign country shall be entitled to or shall

receive a dividend upon his or her claim out of a statutory deposit or the proceeds of any bond or

other asset located in another state or foreign country, unless such deposit or proceeds shall have

been delivered to the domiciliary liquidator, then the claimants shall not be entitled to any further

dividend from the receiver until and unless all other claimants of the same class, irrespective of

residence or place of the acts or contracts upon which their claims are based, shall have received

an equal dividend upon their claims, and after such equalization, such claimants shall be entitled

to share in the distribution of further dividends by the receiver, along with and like all other

creditors of the same class, wheresoever residing.

Upon the declaration of a dividend, the receiver shall apply the amount of the dividend

against any indebtedness owed to the insurer by the person entitled to the dividend. There shall be

no claim allowed for any deductible charged by a guaranty association or entity performing a

similar function.

     SECTION 2. This act shall take effect upon passage.

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LC03372

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