Bill Text: TX HB2834 | 2011-2012 | 82nd Legislature | Introduced
Bill Title: Relating to insurer receivership.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2011-05-13 - Laid on the table subject to call [HB2834 Detail]
Download: Texas-2011-HB2834-Introduced.html
82R10358 RWG-F | ||
By: Smithee | H.B. No. 2834 |
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relating to insurer receivership. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Sections 443.005(a) and (e), Insurance Code, are | ||
amended to read as follows: | ||
(a) Except as authorized by Section 203(e)(3), Pub. L. No. | ||
111-203, a [ |
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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 [ |
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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 [ |
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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. Section 443.052(a), Insurance Code, is amended | ||
to read as follows: | ||
(a) Except as authorized by Section 203(e)(3), Pub. L. No. | ||
111-203, any [ |
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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 [ |
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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; [ |
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(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 [ |
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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. Section 443.154(i), Insurance Code, is amended | ||
to read as follows: | ||
(i) The liquidator may, subject to Subsection (y) [ |
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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. Section 443.211(b), 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 [ |
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(2) paid under: | ||
(A) Chapter 462, 463, or 2602; or | ||
(B) the guaranty associations of other states. | ||
SECTION 9. Section 443.253(e), 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 [ |
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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) [ |
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arising out of reinsurance contracts; | ||
(B) [ |
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claims on policies other than reinsurance agreements, incurred | ||
after: | ||
(i) [ |
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insurance policy; | ||
(ii) [ |
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the insured or canceled at the insured's request; or | ||
(iii) [ |
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provided by this chapter; | ||
(C) [ |
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pools, or underwriting associations and their claims for | ||
contribution, indemnity, or subrogation, equitable or otherwise; | ||
(D) [ |
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applicable limits provided in the insurance policy issued by the | ||
insurer; | ||
(E) [ |
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exemplary damages unless expressly covered under the terms of the | ||
policy; | ||
(F) [ |
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insurer and claims against the insurer for bad faith or wrongful | ||
settlement practices; and | ||
(G) [ |
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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 [ |
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(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. Sections 443.303(a) and (b), 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) [ |
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(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) [ |
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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. |