CHAPTER 420

FORMERLY

HOUSE BILL NO. 614

AS AMENDED BY HOUSE AMENDMENT NO. 1

AN ACT TO AMEND CHAPTER 59, TITLE 18. OF THE DELAWARE CODE. BY ADDING SUMMARY PROCEDURES FOR SUPERVISION OF INSURANCE COMPANIES BY THE INSURANCE COMMISSIONER TO PERMIT IMMEDIATE RESPONSE TO FINANCIAL/MANAGEMENT PROBLEMS WHICH WOULD JEOPARDIZE POLICYHOLDERS AND OTHERS.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend Title 18, Chapter 59 of the Delaware Code by redesignating Sections 5901 through 5932 inclusive as follows:

"Subchapter I - Rehabilitation and Liquidation"

Section 2. Amend Title 18, Chapter 59 of the Delaware Code by adding a new Subchapter II "Summary Proceedings" as follows:

"Subchapter II - Summary Proceedings

§5941. Commissioner's summary orders

Whenever the Commissioner has reasonable cause to believe, and determine, after a hearing held as prescribed in subsection (c). that any Insurer has committed or engaged in any act, practice or transaction that would subject it to formal delinquency proceedings under this chapter. he may make and serve upon the insurer and any other persons involved, such orders. including an order suspending the business of an insurer, as are reasonably necessary to correct, eliminate or remedy such conduct, condition or ground.

If the conditions of subsection (a). other than notice and hearing. are satisfied, and if the Commissioner has reasonable grounds to believe that irreparable harm to the property or business of the insurer or to the interests of its policy or certificate holders, creditors or the public may occur unless he issues with immediate effect the orders described in subsection (a), he may make and serve such orders without notice and before hearing, simultaneously serving upon the insurer notice of hearing under subsection (c).

The notice of hearing under subsections (a) or (b) and the summary order issued under subsections (a) or (b) shall be served pursuant to the applicable rules of civil or administrative procedure. The notice of hearing under subsection (a) shall state the time and place of hearing. and the conduct, condition or ground upon which the Commissioner would base his order: the notice of hearing under subsection (b) shall state the time and place of hearing. Unless mutually agreed between the Commissioner and the insurer, the hearing shall occur not more than fifteen days after notice is served. The Commissioner shall not publicize such hearings and shall hold all hearings in summary proceedings privately unless the insurer requests a public hearing, in which case the hearing shall be public.

Any suspension order made by the Commissioner under the provisions of subsection (a) shall prohibit issuance of policies, transfers of property. and payments of moneys, without prior written approval of the Commissioner. Notice of such suspension shall be given, by first class mail within fifteen days thereof. by the suspended organization to those who were creditors. policyholders, members and certificate holders at the date of suspension. Notice of such suspension shall be given, within fifteen days thereof. by the Commissioner to creditors, policyholders, members and certificate holders by advertising the same by one publication in a newspaper of general circulation in the county where the suspended organization has its principal office. From the date of such suspension on the ground that the insurer is Insolvent, or is in such condition that its further transaction of business will be hazardous financially to its policyholders. creditors, or the public, no action at law or equity shall be commenced or prosecuted nor shall any judgment be entered against nor shall any execution or attachment be issued or prosecuted against the suspended insurer, or against its property, in any court in the State: Provided, that if such suspension order be vacated by the Chancery Court for the reason that the suspended insurer is no longer insolvent, or in such condition that Its further transaction of business wil be hazardous to its policyholders or to its creditors or to the public. these restraints upon legal process regarding the insurer shall thereafter cease to be operative.

If the Commissioner issues a summary order before hearing under this section, the insurer may at any time waive the Commissioner's hearing and apply for Immediate Judicial relief by means of any remedy afforded by law without first exhausting administrative remedies.

If any person has violated any order issued under this section which as to him was then still in effect, he shall be liable to pay a civil penalty imposed by the Chancery Court not to exceed ten thousand dollars (510,000).

The Commissioner may apply to the Chancery Court for such restraining orders, preliminary and permanent injunctions, and other orders as may be deemed necessary and proper to enforce a sununary order.

§5942. Commissioner's supervision

If upon examination or at any other time the Commissioner has reasonable cause to believe, and determines, that an insurer has committed, engaged, or is about to engage in any act, practice, or transaction that would subject it to formal delinquency proceedings under this chapter, or if such insurance company gives its consent, then the Commissioner shall upon his determination notify the insurer of his determination and furnish to the insurer an order or orders containing a written list of the Commissioner's requirements to abate his determination. If the Commissioner after a hearing held as provided in Section 5941 (c) makes a further determination to supervise he shall issue an order to the insurer notifying it that it is under the supervision of the Commissioner and that the Commissioner is applying and affecting the provisions of this section. The Commissioner may issue an order under this section without a hearing under the conditions provided under Section 5941 (b), and shall simultaneously serve upon the insurer notice of a hearing to be held in accordance with the provisions of Section 5941 (c), and in such event, the insurer may file an appeal in accordance with the provisions of Section 5941 (e). Such insurer shall comply with the lawful requirements of the Commissioner and, if placed under an order of supervision shall have ninety days from the date of service of such order within which to comply with the requirements of the Commissioner. In the event of such insurer's failure to comply within such time, the Commissioner may institute proceedings in the Chancery Court to have a rehabilitator or liquidator appointed under the provisions of this subchapter, or issue an order extending an existing order of supervision. Such order extending any existing order shall be issued prior to the end of each ninety-day period, unless otherwise agreed to by the insurer.

The Commissioner may appoint a supervisor to supervise such insurer and may provide that the insurer may not do any of the following acts, during the period of supervision, without the prior written approval of the Commissioner or his supervisor; (I) dispose of, convey or encumber any of its assets or its business in force; (ii) withdraw any of its bank accounts; (UM lend any of its funds; (iv) invest any of its funds; (v) transfer any of its property; (vi) incur any debit, obligation or liability; (vii) merge or consolidate with another company; or (viii) enter into any new reinsurance contract or treaty.

In the event that any person, subject to the provisions of this chapter, shall violate any valid order of the Commissioner issued under the provisions of this section and, as a result, the net worth of the insurer shall be reduced or the insurer shal otherwise suffer loss said person shall become personally liable to the insurer for the amount of any such reduction or loss. The Commissioner or supervisor is authorized to bring an action on behalf of the insurer in the Chancery Court to recover the amount of the reduction or loss together with any costs.

§5943. Court's seizure order

Upon the filing by the Commissioner in the Chancery Court of a petition alleging, (I) any ground that would justify a court order for a formal delinquency proceeding against an insurer under this chapter, and (U) that the interests of policyholders, creditors or the public will be endangered by delay, and (iii) setting out the order deemed necessary by the Commissioner, the court may issue forthwith, ex parte and without a hearing, the requested order which shall direct the Commissioner to take possession and control of all or a part of the property, books, accounts, documents, and other records of an insurer, and of the premises occupied by it for the transaction of its business, and until further order of the court enjoin the insurer and its officers, managers, agents, and employees from disposition of its property and from transaction of its business except with the written consent of the Commissioner.

The court shall specify in the order what its duration shall be, which shall be such time as the court deems necessary for the Commissioner to ascertain the condition of the insurer. Such initial duration or any extension thereof shall not exceed ninety days. On motion of either party or on its own motion, the court may from time to time hold such hearings as it deems desirable after such notice as it deems appropriate, and may extend, shorten, or modiy the terms of the seizure order. The court shall vacate the seizure order if the Commissioner fails to commence a formal proceeding under this subchapter prior to the expiration of a seizure order or any extension thereof. An order of the court pursuant to a formal proceeding under this subchapter shall ipso facto vacate the seizure order.

Entry of a seizure order under this section shall not constitute an anticipatory breach of any contract of the insurer.

An insurer subject to an ex parte order of the Chancery Court issued under the provisions of this section may petition the court at any time after the issuance of such order for a hearing and review of the order, and the court shall grant such a hearing and review within ten days of the filing of such petition.

§5944. Conduct of hearings in summary proceedings

The Chancery Court may hold all hearings in summary proceedings and judicial review thereof privately in chambers, and shall do so on request of the insurer proceeded against.

In all summary proceedings and judicial reviews thereof, all records of the insurer, other documents. and all Insurance Department files and court records and papers, so far as they pertian to or are a part of the record of the summary proceedings, shall be and remain confidential except as is necessary to obtain compliance therewith, unless and until the Chancery Court, after hearing arguments from the parties in chambers, shall order otherwise, or unless the insurer requests that the matter be made public. Until such court order, all papers filed with the clerk of the Chancery Court shall be held by him in a confidential file.

Any person having possession or custody of and refusing to deliver any of the property, books, accounts. documents or other records of or relating to an insurer against which a seizure order or a summary order has been issued by the Commissioner or by the Chancery Court, may be fined not more than ten thousand dollars ($10,000) or sentenced to undergo imprisonment for not more than one year, or both."

Section 3. This act shall become effective upon its adoption.

Approved July 20, 1984.