HOUSE SUBSTITUTE NO. 1
HOUSE BILL NO. 141
AN ACT TO AMEND TITLE 18, DELAWARE CODE, CHAPTER 44, TO SET FORTH IN GREATER DETAILS THE OBLIGATIONS AND POWERS OF THE DELAWARE LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:
Section 1. Amend §4402, Chapter 44, Title 18 of the Delaware Code by deleting it in its entirety and by substituting in lieu thereof the following:
The purpose of this chapter is to protect, subject to certain limitations, the persons specified in §4403(a) against failure in the performance of contractual obligations, under life and health insurance policies and annuity contracts specified in §4403(b), because of the impairment or insolvency of the member insurer that issued the policies or contracts. To provide this protection, an association of insurers is created to pay benefits and to continue coverage as limited herein, and members of the Association are subject to assessment to provide funds to carry out the purpose of this chapter."
Section 2. Amend §4403, Chapter 44, Title 18 of the Delaware Code by
deleting it in its entirety and substituting in lieu thereof the following:
"§4403. Coverage and Limitations.
(a) This chapter shall provide coverage, for the policies and contracts specified in subsection (b), to:
(1) persons who, regardless of where they reside (except for non-resident certificate holders under group policies or contracts), are the beneficiaries, assignees or payees of the persons covered under paragraph (2) and;
(2) persons who are owners of or certificate holders under such policies or contracts, or in the case of unallocated annuity contracts, to the persons who are the contract holders, and who:
a. are residents, or
b. are not residents, but only under all of the following conditions:
1. the insurers which issued such policies or contracts are domiciled in this state,
1. such insurers never held a license or certificate of authority in the states in which such persons reside,
2. such states have associations similar to the association
established in this Chapter and
3. such persons are not eligible for coverage by such
associations where they reside.
(b)(1) This chapter shall provide coverage to the persons specified in
subsection (a) for direct, non-group life, health, annuity and supplemental policies or contracts, for certificates under direct group policies and contracts, and for unallocated annuity contracts issued by member insurers, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include but are not limited to guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, lottery contracts and any immediate or deferred annuity contracts.
(2) This chapter shall not provide coverage for the following:
a. any portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract holder;
b. any policy or contract of reinsurance, unless assumption certificates have been issued;
c. any portion of a policy or contract to the extent that the rate of interest on which it is based:
1. averaged over the period of four years prior to the date on which the Association becomes obligated with respect to such policy or contract; exceeds a rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four year period or for such lesser period if the policy or contract was issued less than four years before the Association became obligated; and
1. on and after the date on which the Association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available;
d. any plan or program of an employer, association or similar entity to provide life, health, or annuity benefits to its employees or members to the extent that such plan or program is self-funded or uninsured, including but not limited to benefits payable by an employer, association or similar entity under any of the following:
1. a Multiple Employer Welfare Arrangement as definded in section 514 of the Employees Retirement Income Security Act of 1974, as amended;
2. a minimum premium group insurance plan;
3. a stop-loss group insurance plan; or
4. an administrative services only contract;
e. any portion of a policy or contract to the extent that it provides dividends or experience rating credits, or provides that any fees or allowances be paid to any person, including the policy or contract holder, in connection with the service to or administration of such policy or contract;
f. any policy or contract issued in this state by a member insurer at a time when it was not licensed or did not have a certificate of authority to Issue such policy or contract In this state;
g. any unallocated annuity contract issued to an employee benefit plan protected under the federal Pension Benefit Guaranty Corporation; or
h. any portion of any unallocated annuity contract which is not issued to or in connection with a specific employee, union or association of natural persons benefit plan or a government lottery.
(c) The benefits for which the Association may become liable shall in no event exceed the lesser of the following:
(1) the contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer, or
(1) (A) with respect to any one life, regardless of the number of policies or contracts:
a. $300,000 in life insurance death benefits, but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance;
b. $100,000 in health insurance benefits, including any net cash surrender and net cash withdrawal values; or
c. $100,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.
d. However in no event shall the Association be liable to expend more than $300,000 in the aggregrate with respect to any one life under subparagraphs a., b., and c. and 3 above;
1. with respect to each individual participating in a governmental retirement plan established under §§401 (K), 403(6) or 457 of the U.S. Internal Revenue Code covered by an unallocated annuity contract, or the beneficiaries of each such individual if deceased, $100,000 in the aggregate in present value annuity benefits, including net cash surrender and net cash withdrawal values; or
2. with respect to any one contract holder, $1,000,000 in unallocated annuity contract benefits, irrespective of the number of such contracts held by that contract holder."
Section 3. Amend §4405, Chapter 44, Title 18 of the Delaware Code by
deleting it In its entirety and by substituting in lieu thereof the following:
As used in this chapter:
(a) "Account" means any of the three accounts created under §4406.
(b) "Association" means the Delaware Life and Health Insurance Guaranty Association created under §4406.
(c) "Commissioner" means the Commissioner of Insurance of this state.
(d) "Contractual obligation" means any obligation under a policy or contract or certificate under a group policy or contract, or portion thereof, for which coverage is provided under §4403.
(e) "Covered policy" means any policy or contract within the scope of this chapter under §4403.
(f) "Impaired insurer" means a member insurer which, after the effective date of the chapter, is not an insolvent insurer, and (1) is deemed by the Commissioner to be potentially unable to fulfill its contractual
obligations or (2) is placed under an order of rehabilitation or conservation by a court of competent jurisdiction.
(g) "Insolvent insurer" means a member insurer which, after the effective date of this chapter, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency.
(h) "Member insurer" means any insurer licensed or which holds a certificate of authority to transact in the state any kind of insurance for which coverage is provided under §4403, and includes any insurer whose license or certificate of authority in this state may have been suspended, revoked, not renewed or voluntarily withdrawn, but does not include:
(1) A non—profit hospital or medical service organization;
(1) A health maintenance organization;
(1) A fraternal benefit society;
(1) A mandatory state pooling plan;
(1) A mutual assessment company or any entity that operates on an assessment basis;
(1) An insurance exchange; or
(7) An entity similar to any of the above.
(i) "Moody's Corporate Bond Yield Average" means the Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto.
(j) "Person" means any individual, corporation, partnership, association or voluntary organization.
(k) "Premiums" means amounts received on covered policies or contracts less premiums, considerations and deposits returned thereon, and less dividends and experience credits thereon. "Premiums" does not include any amounts received for any policies or contracts or for the portions of any policies or contracts for which coverage is not provided in §4403 (b) except that assessible premium shall not be reduced on account of §4403 (b)(2) c relating to interest limitations and §4403 (c) (2) relating to limitations with respect to any one life and any one contractholder; provided that "premiums" shall not include any premiums in excess of one million dollars on any unallocated annuity contract not issued under a governmental retirement plan established under §§401 (K), 403 (b) or 457 of the United States Internal Revenue Code.
(1) "Resident" means any person who resides in this state at the time a member insurer is determined to be an impaired or insolvent insurer and to whom a contractual obligation is owed. A person may be a resident of only one state, which in the case of a person other than a natural person shall be its principal place of business.
(m) "Supplemental contract" means any agreement entered into for the distribution of policy or contract proceeds.
(n) "Unallocated annuity contract" means any annuity contract or group annuity certificate which is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under such contract or certificate."
Section 4. Amend §4408, Chapter 44, Title 18 of the Delaware Code by deleting it in its entirety and by substituting in lieu thereof the following:
"§4408. Powers and Duties of the Association.
(a) If a member insurer is an impaired domestic insurer, the Association may, in its discretion, and subject to any conditions imposed by the Association that do not impair the contractual obligations of the impaired insurer, that are approved by the Commissioner, and that are, except in cases of court ordered conservation or rehabilitation, also approved by the impaired insurer:
(1) guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured, any or all of the policies or contracts of the impaired insurer;
(2) provide such monies, pledges, notes, guarantees, or other means as are proper to effectuate paragraph (1) and assure payment of the contractual obligations of the impaired insurer pending action under paragraph (1); and
(3) loan money to the impaired insurer.
(b)(1) If a member insurer is an impaired insurer, whether domestic, foreign or alien, and the insurer is not paying claims timely, then subject to the preconditions specified in paragraph (2), the Association shall, in its discretion, either:
a. take any of the actions specified in subsection (a), subject to the conditions therein, or
b. provide substitute benefits in lieu of the contractual obligations of the impaired insurer solely for health claims, periodic annuity benefit payments, death benefits, supplemental benefits, and cash withdrawals for policy or contract owners who petition therefor under
claims of emergency or hardship in accordance with standards proposed by the Association and approved by the Commissioner.
(2) The Association shall be subject to the requirements of paragraph (1) only if the laws of the impaired insurer's state of domicile provide that until all payments of or on account of the impaired insurer's contractual obligations by all guaranty associations, along with all expenses thereof and interest on all such payments and expenses, shall have been re—paid to the guaranty association or a plan of repayment by the impaired insurer shall have been approved by the guaranty associations:
a. the delinquency proceeding shall not be dismissed,
b. neither the impaired insurer nor its assets shall be returned to the control of its shareholders or private management, and
c. it shall not be permitted to solicit or accept new business or have any suspended or revoked license restored; and
a. when the impaired insurer is a domestic insurer, it has been placed under an order of rehabilitation by a court of competent jurisdiction in this state, and
e when the impaired insurer is a foreign or alien insurer,
(1) it has been prohibited from soliciting or accepting new
business in this state,
(1) its certificate of authority has been suspended or revoked
in this state, and
(1) a petition for rehabilitation or liquidation has been filed in a court of competent jurisdiction in its state of domicile by the commissioner of that state.
(c) If a member insurer is an insolvent insurer, the Association shall, in its discretion, either:
(1) a. guaranty, assume or reinsure, or cause to be guaranteed, assumed or reinsured, the policies or contracts of the insolvent insurer; or
b. assure payment of the contractual obligations of the insolvent insurer; and
c. provide such monies, pledges, guarantees, or other means as are reasonably necessary to discharge such duties; or
(2) with respect only to life and health insurance policies, provide benefits and coverages in accordance with subsection (d).
(d) When proceeding under subsections (b)(1) a. or (c)(2), the Association shall with respect to only life and health insurance policies:
(1) assure payment of benefits for premiums identical to the premiums and benefits (except for terms of conversion and renewability) that would have been payable under the policies of the insolvent insurer for claims incurred:
a. with respect to group policies, not later than the earlier of the next renewal date under such policies or contracts or 45 days, but in no event less than 30 days, after the date on which the Association becomes obligated with respect to such policies; and
b. with respect to individual policies, not later than the earlier of the next renewal date (if any) under such policies or one year, but in no event less than 30 days, from the date on which the Association becomes obligated with respect to such policies;
(2) make diligent efforts to provide all known insureds or group policyholders with respect to group policies 30 days notice of the termination of the benefits provided; and
(3) with respect to individual policies, make available to each known insured, or owner if other than the insured, and with respect to an individual formerly insured under a group policy who is not eligible for replacement group coverage, substitute coverage on an individual basis in accordance with the provisions of subsection (e) of this section, if the insureds have a right under law or the terminated policy to convert coverage to individual coverage or to continue an individual policy in force until a specified age or for a specified time, during which the insurer had no right unilaterally to make changes in any provision of the policy or had a right only to make changes in premium by class.
(e)(1) In providing the substitute coverage required under paragraph (3) of subsection (d), the Association may offer either to reissue the terminated coverage or to issue an alternative policy.
(2) Alternative or reissued policies shall be offered without requiring evidence of insurability, and shall not provide for any waiting period or exclusion that would not have applied under the terminated policy.
(1) The Association may reinsure any alternative or reissued policy.
(2) Alternative policies adopted by the Association shall be subject to the approval of the Commissioner. The Association may
adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.
(3) Alternative policies shall contain at least the minimum statutory provisions required in this state and provide benefits that shall not be unreasonable in relation to the premium charged. The Association shall set the premium in accordance with a table of rates which it shall adopt. The premium shall reflect the amount of
insurance to be provided and the age and class of risk of each insured, but shall not reflect any changes in the health of the insured after the original policy was last underwritten.
(1) Any alternative policy issued by the Association shall provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the Association.
(1) If the Association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the Association in accordance with the amount of insurance provided and the age and class of risk, subject to approval of the Commissioner or by a court of competent jurisdiction.
(1) The Association's obligations with respect to coverage under any policy of the impaired or insolvent insurer or under any reissued or alternative policy shall cease on the date such coverage or policy is replaced by another similar policy by the policy holder, the insured, or the Association.
(f) When proceeding under subsections (b)(1) a. or (c) with respect to any policy or contract carrying guaranteed minimum interest rates, the Association shall assure the payment or crediting of a rate of interest consistent with §4403(b)(2)(C).
(g) Nonpayment of premiums within 31 days after the date required under the terms of any guaranteed, assumed, alternative or reissued policy or contract or substitute coverage shall terminate the Association's
obligations under such policy or coverage under this chapter with respect to such policy or coverage, except with respect to any claim incurred or any net cash surrender value which may be due in accordance with the provisions of this chapter.
(h) Premiums due for coverage after entry of an order of liquidation of an insolvent insurer shall belong to and be payable at the direction of the Association, and the Association shall be liable for unearned premiums due to policy or contract owners arising after the entry of such order.
(i) The protection provided by this chapter shall not apply where any guaranty protection is provided to residents of this state by the laws of the domiciliary state or jurisdiction of the impaired or insolvent insurer other than this state.
(j) In carrying out its duties under subsections (b) and (c) of this section, the Association may, subject to approval by court:
(1) impose permanent policy or contract liens in connection with any guarantee, assumption or reinsurance agreement, if the Association finds that the amounts which can be assessed under this chapter are less than the amounts needed to assure full and prompt performance of the Association's duties under this chapter or that the economic or financial conditions as they affect member insurers are sufficiently adverse to render the imposition of such permanent policy or contract liens to be in the public interest; and
(2) impose temporary moratoriums or liens on payments of cash values and policy loans, or any other right to withdraw funds held in conjunction with policies or contracts, in addition to any contractual provisions for deferral of cash or policy loan value.
(k) If the Association fails to act within a reasonable period of time as provided in subsections (b)(1) b., (c) and (d) of this section, the Commissioner shall have the powers and duties of the Association under this chapter with respect to impaired or insolvent insurers.
(1) The Association may render assistance and advice to the Commissioner, upon his request, concerning rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of any impaired or insolvent insurer.
(m) The Association shall have standing to appear before any court in this state with jurisdiction over an impaired or insolvent insurer concerning which the Association is or may become obligated under this chapter. Such standing shall extend to all matters germane to the powers and duties of the Association, including, but not limited to, proposals for reinsuring, modifying or guaranteeing the policies or contracts of the impaired or insolvent insurer and the determination of the policies or contracts and contractual obligations. The Association shall also have the right to
appear or intervene before a court in another state with jurisdiction over an impaired or insolvent insurer for which the Association is or may become obligated or with jurisdiction over a third party against whom the Association may have the rights through subrogation of the insurer's policyholders.
(n) (1) Any person receiving benefits under this chapter shall be deemed to have assigned their rights under, and any causes of action relating to, the covered policy or contract to the Association to the extent of the benefits received because of this chapter, whether the benefits are payments of or on account of contractual obligations, continuation of coverage or provision of substitute or alternative coverage. The Association may
require an assignment to it of such rights and causes of action by any payee, policy contract owner, beneficiary, insured or annuitant as a condition precedent to the receipt of any right or benefits conferred by this chapter upon such person.
(2) The subrogation rights of the Association under this subsection shall have the same priority against the assets of the impaired or insolvent insurer as that possessed by the person entitled to receive benefits under this chapter.
(3) In addition to paragraphs (1) and (2) above, the Association shall have all common law rights of subrogation and any other equitable or legal remedy which would have been available to the impaired or insolvent insurer or holder of a policy or contract with respect to such policy or contract.
(o) The Association may do the following:
(1) enter into such contracts as are necessary or proper to carry out the provisions and purposes of this chapter;
sue or be sued, including taking any legal actions necessary or proper to recover any unpaid assessments under Section 4409 and to settle claims or potential claims against it;
(2) borrow money to effect the purposes of this chapter, whereby any notes or other evidence of indebtedness of the Association not in default shall be legal investments for domestic insurers and may be carried as admitted assets;
(3) employ or retain such persons as are necessary to handle the financial transactions of the Association, and to perform such other functions as become necessary or proper under this chapter;
(4) take such legal action as may be necessary to avoid payment of improper claims; and
(5) exercise, for the purposes of this chapter and to the extent approved by the Commissioner, the powers of a domestic life or health insurer, but in no case may the Association issue insurance policies or annuity contracts other than those issued to perform its obligations under this chapter.
(p) The Association may join an organization of one or more other state associations of similar purposes to further the purposes and administer the powers and duties of Association."
Section 5, Amend §4409, Chapter 44, Title 18 of the Delaware Code by deleting it in its entirety and by substituting in lieu thereof the following:
(a) For the purpose of providing the funds necessary to carry out the powers and duties of the Association, the Board of Directors shall assess the member insurers, separately for each account, at such time and for such amounts as the Board finds necessary. Assessments shall be due not less than 30 days after prior written notice to the member insurers and shall accrue interest at 101. per annum on and after the due date.
(b) There shall be three classes of assessment as follows:
(1) Class A assessments, shall be made for the purpose of meeting administrative costs and other expenses and examinations conducted under the authority of §4412(e). class A assessments may be made
whether or not related to a particular impaired or insolvent insurer.
(2) Class B assessments shall be made annually to provided for the oversight activity of the Commissioner, thereby minimizing the need to make Class C assessments.
(3) Class C assessments shall be made to the extent necessary to carry out the duties of the Association under this title with regards to an impaired or insolvent member insurer.
(c) (1) The amount of any Class A assessment shall be determined by the Board and may be made on a non—prorata basis and shall not exceed $150 per member insurer in any one calendar year.
(2) The amount of a Class B assessment shall be determined by the Commissioner who and shall so notify the Association not later then July 31 of the calendar year in which the assessment is to be made. A Class B assessment may be made on a non—prorata basis, but the amount shall not exceed one tenth of one percent of the members premium written during the calendar year preceeding the assessment. The amount assessed in conjuction with Class C assessments shall not result in members being assessed more than 2% of the premiums written in the applicable year. The proceeds of this assessment shall be paid by the Association into the Commissioner's Regulatory Revolving Fund.
(1) Class C assessments against member insurers for each account shall be in the proportion that the premiums received on business in this state by each assessed member insurer on policies or contracts covered by each account for the most recent calendar year for which information is
available preceding the year in which the insurer became impaired or insolvent, as the case may be, bears to such premiums received on business in this state for such calendar year by all assessed member insurers.
(4) Assessments for funds to meet the requirements of the Association with respect to an impaired or insolvent insurer shall not be made until necessary to implement the purposes of this chapter. Classification of assessments under subsection (b) of this section and computation of assessments under this subsection shall be made with a reasonable degree of accuracy, recognizing that exact determination may not always be possible.
(d) The Association may abate or defer, in whole or in part, the assessment of the member insurer if, in the opinion of the Board, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations. In the event an assessment against a member
insurer is abated, or deferred in whole or in part, the amount by which such assessment is abated or deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this section.
(a) The total of all assessments upon a member insurer for each account shall not in any one calendar year
2% of such insurer's average annual premiums received in this state on the policies and contracts covered by the account during the three calendar years preceding the year in which the insurer became an impaired or insolvent insurer. If the
maximum assessment, together with the other assets of the Association, does not provide in any one year an amount sufficient to carry out the responsibilities of the Association, the necessary additional funds shall be assessed as soon thereafter as premitted by this chapter.
The Board may provide in the plan of operation a method of allocating funds among claims, whether relating to one or more impaired or insolvent insurers, when the maximum assessment will be insufficient to cover anticipated claims.
(a) The Board may, by an equitable method as established in the plan of operation, refund to member insurers, in proportion to the contribution of each insurer to that account, the amount by which the assets of the account exceed the amount the Board finds is necessary to carry out during the coming year the obligations of the Association with regard to that account, including assets accruing from assignment, subrogation, net realized gains and income from investments. A reasonable amount may be retained in any account to provide funds for the continuing expenses of the Association and for future losses.
(a) It shall be proper for any member insurer, in determining its premium rates and policy owner dividends as to any kind of insurance within the scope of this chapter, to consider the amount reasonably necessary to meet its assessment obligations under this chapter.
(a) The Association shall issue to each insurer paying a Class C assessment a certificate of contribution, in a form prescribed by the Commissioner, for the amount of the assessment so paid. All outstanding certificates shall be given equal dignity and priority without reference to amounts or dates of issue. A certificate of contribution may be shown by the insurer in its financial statement as an asset in such form and for such amount, if any, and period of time as the Commissioner may approve."
Section 6. Amend §4417, Chapter 44, Title 18 of the Delaware Code by adding, a sentence to the end of said section to read as follows:
"Such immunity shall extend to the participation in any organization of one or more other state associations of similar purposes and to any such organization and its agents or employees."
Section 7. Amend §4420, Chapter 44, Title 18 of the Delaware Code by deleting it in its entirety,
Section 8. This Act shall become effective immediately upon its adoption.
Approved June 25, 1991.