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AN ACT relating to insurance. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 304.3-705 is amended to read as follows: 3
(1) Except as provided in subsection (2) of this section, on or before December 31, 4
2030[2025], a person may apply to the department for admission to the sandbox by 5
submitting an application in the form prescribed by the commissioner, accompanied 6
by the following: 7
(a) A filing fee of seven hundred fifty dollars ($750); 8
(b) A detailed description of the innovation, which shall include: 9
1. An explanation of how the innovation will: 10
a. Add value to customers and serve the public interest; 11
b. Be economically viable for the applicant; 12
c. Provide suitable consumer protection; and 13
d. Not pose an unreasonable risk of consumer harm; 14
2. A detailed description of the statutory and regulatory issues that may 15
prevent the innovation from being currently utilized, issued, sold, 16
solicited, distributed, or advertised in the market; 17
3. A description of how the innovation functions and the manner in which 18
it will be offered or provided; 19
4. If the innovation involves the use of software, hardware, or other 20
technology developed for the purpose of implementing or operating it, a 21
technical white paper setting forth a description of the operation and 22
general content of technology to be utilized, including: 23
a. The problem addressed by that technology; and 24
b. The interaction between that technology and its users; 25
5. If the innovation involves the issuance of a policy of insurance, a 26
statement that either: 27 UNOFFICIAL COPY 25 RS HB 184/EN
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a. If the applicant will be the insurer on the policy, that the applicant 1
holds a valid certificate of authority and is authorized to issue the 2
insurance coverage in question; or 3
b. If some other person will be the insurer on the policy, that the 4
other person holds a valid certificate of authority and is authorized 5
to issue the insurance coverage in question; and 6
6. A statement by an officer of the applicant certifying that no product, 7
process, method, or procedure substantially similar to the innovation has 8
been used, sold, licensed, or otherwise made available in this 9
Commonwealth before the effective filing date of the application; 10
(c) The name, contact information, and bar number of the applicant's insurance 11
regulatory counsel, which shall be a person with experience providing 12
insurance regulatory compliance advice; 13
(d) A detailed description of the specific conduct that the applicant proposes 14
should be permitted by the limited no-action letter; 15
(e) Proposed terms and conditions to govern the applicant's beta test, which shall 16
include: 17
1. Citation to the provisions of Kentucky law that should be excepted in 18
the notice of acceptance issued under KRS 304.3-710(6); and 19
2. Any request for an extension of the time period for a beta test under 20
KRS 304.3-720(1) and the grounds for the request; 21
(f) Proposed metrics by which the department may reasonably test the 22
innovation's utility during the beta test; 23
(g) Disclosure of all: 24
1. Persons who are directors and executive officers of the applicant; 25
2. General partners of the applicant if the applicant is a limited partnership; 26
3. Members of the applicant if the applicant is a limited liability applicant; 27 UNOFFICIAL COPY 25 RS HB 184/EN
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4. Persons who are beneficial owners of ten percent (10%) or more of the 1
voting securities of the applicant; 2
5. Other persons with direct or indirect power to direct the management 3
and policies of the applicant by contract, other than a commercial 4
contract for goods or nonmanagement services; and 5
6. Conflicts of interest with respect to any person listed in this paragraph 6
and the department; 7
(h) A statement that the applicant has funds of at least twenty-five thousand 8
dollars ($25,000) available to guarantee its financial stability through one (1) 9
or a combination of any of the following: 10
1. A contractual liability insurance policy; 11
2. A surety bond issued by an authorized surety; 12
3. Securities of the type eligible for deposit by authorized insurers in this 13
Commonwealth; 14
4. Evidence that the applicant has established an account payable to the 15
commissioner in a federally insured financial institution in this 16
Commonwealth and has deposited money of the United States in an 17
amount equal to the amount required by this paragraph that is not 18
available for withdrawal, except by direct order of the commissioner; 19
5. A letter of credit issued by a qualified United States financial institution 20
as defined in KRS 304.9-700; or 21
6. Another form of security authorized by the commissioner; and 22
(i) A statement confirming that the applicant is not seeking authorization for, nor 23
shall it engage in, any conduct that would render the applicant unauthorized to 24
make an application under subsection (2) of this section. 25
(2) (a) The following persons shall not be authorized to make an application to the 26
department for admission to the sandbox: 27 UNOFFICIAL COPY 25 RS HB 184/EN
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1. Any person seeking to sell or license an insurance innovation directly to 1
any federal, state, or local government entity, agency, or instrumentality 2
as the insured person or end user of the innovation; 3
2. Any person seeking to sell, license, or use an insurance innovation that 4
is not in compliance with subsection (1)(b)5. of this section; 5
3. Any person seeking to make an application that would result in the 6
person having more than five (5) active beta tests ongoing within the 7
Commonwealth at any one (1) time; and 8
4. Any person seeking a limited or extended no-action letter or exemption 9
from any administrative regulation or statute concerning: 10
a. Assets, deposits, investments, capital, surplus, or other solvency 11
requirements applicable to insurers; 12
b. Required participation in any assigned risk plan, residual market, 13
or guaranty fund; 14
c. Any licensing or certificate of authority requirements; or 15
d. The application of any taxes or fees. 16
(b) For the purposes of this subsection, "federal, state, or local government entity, 17
agency, or instrumentality" includes any county, city, municipal corporation, 18
urban-county government, charter county government, consolidated local 19
government, unified local government, special district, special purpose 20
governmental entity, public school district, or public institution of education. 21
(3) Notwithstanding any other provision of this chapter, a person regulated under this 22
chapter may participate in the regulatory sandbox described in KRS 15.268 if the 23
person is: 24
(a) Not authorized to make an application under this section; or 25
(b) Seeking regulatory relief that is not available under KRS 304.3-700 to 304.3-26
735. 27 UNOFFICIAL COPY 25 RS HB 184/EN
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Section 2. KRS 304.3-735 is amended to read as follows: 1
(1) One hundred twenty days (120) days prior to the start of the [2021, 2022, 2023, 2
2024, and 2025]2026, 2027, 2028, 2029, and 2030 regular sessions of the General 3
Assembly, the commissioner shall submit a written report to the Interim Joint 4
Committee on Banking and Insurance that meets the requirements of subsection (2) 5
of this section. Thereafter, the commissioner shall submit the report annually, upon 6
request. 7
(2) The report shall include the following: 8
(a) The number of: 9
1. Applications filed and accepted; 10
2. Beta tests conducted; and 11
3. Extended letters issued; 12
(b) A description of the innovations tested; 13
(c) The length of each beta test; 14
(d) The results of each beta test; 15
(e) A description of each safe harbor created under KRS 304.3-725; 16
(f) The number and types of orders or other actions taken by the commissioner or 17
any other interested party under KRS 304.3-700 to 304.3-725; 18
(g) Identification of any statutory barriers for consideration of amendment by the 19
General Assembly following successful beta tests and the issuance of 20
extended letters; and 21
(h) Any other information or recommendations deemed relevant by the 22
commissioner. 23
(3) The commissioner shall also provide the Interim Joint Committee on Banking and 24
Insurance a detailed briefing, upon request, to discuss and explain any report 25
submitted under this section. 26
SECTION 3. A NEW SECTION OF SUBTITLE 33 OF KRS CHAPTER 304 27 UNOFFICIAL COPY 25 RS HB 184/EN
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IS CREATED TO READ AS FOLLOWS: 1
Notwithstanding any other provision of this subtitle or statute to the contrary: 2
(1) As used in this section: 3
(a) 1. "Netting agreement": 4
a. Means an agreement, including a master agreement or bridge 5
agreement for one (1) or more master agreements, that: 6
i. Documents one (1) or more transactions between parties to 7
the agreement for or involving one (1) or more qualified 8
financial contracts; and 9
ii. Provides for the netting or liquidation of qualified financial 10
contracts among the parties to the agreement; and 11
b. Except as provided in subparagraph 2. of this paragraph, 12
includes any security agreement or arrangement or other credit 13
enhancement or guarantee or reimbursement obligation related 14
to any contract or agreement described in this paragraph. 15
2. Any contract or agreement described in this paragraph relating to 16
agreements or transactions that are not qualified financial contracts 17
shall be deemed a netting agreement only with respect to those 18
agreements or transactions that are qualified financial contracts. 19
3. A master agreement, or bridge agreement for one (1) or more master 20
agreements, together with all schedules, confirmations, definitions, 21
addenda thereto, and transactions under any thereof, shall be treated 22
as one (1) agreement. 23
4. As used in this paragraph: 24
a. "Agreement" includes any terms and conditions incorporated by 25
reference in the agreement; and 26
b. "Netting or liquidation of qualified financial contracts" includes 27 UNOFFICIAL COPY 25 RS HB 184/EN
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netting or liquidation of: 1
i. Present or future payment obligations or payment 2
entitlements under qualified financial contracts; and 3
ii. Liquidation or closeout values relating to present or future 4
payment obligations or payment entitlements under 5
qualified financial contracts; and 6
(b) "Qualified financial contract" means any: 7
1 Commodity contract; 8
2. Forward contract; 9
3. Repurchase agreement; 10
4. Securities contract; 11
5. Swap agreement; or 12
6. Similar agreement specified by the commissioner in an administrative 13
regulation promulgated in accordance with KRS Chapter 13A; 14
(2) A person shall not be stayed or prohibited from exercising any of the following 15
rights: 16
(a) 1. A contractual right to terminate, liquidate, close out, or accelerate any 17
netting agreement or qualified financial contract with an insurer due 18
to: 19
a. The insolvency, financial condition, or default of the insurer, if 20
such right is enforceable under applicable law other than this 21
subtitle; or 22
b. The commencement of a formal delinquency proceeding under 23
this subtitle. 24
2. As used in this paragraph, "contractual right" includes any right 25
arising under: 26
a. Statutory or common law; 27 UNOFFICIAL COPY 25 RS HB 184/EN
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b. Rules or bylaws of a national securities exchange, clearing 1
organization, or securities clearing agency; 2
c. Rules, bylaws, or resolutions of the governing body of a swap 3
execution facility, designated contract market, board of trade, or 4
any clearing organization relating to any of the foregoing; or 5
d. The law merchant; 6
(b) The right to enforce any pledge, security, collateral, guarantee agreement, 7
or other credit support document related to a netting agreement or qualified 8
financial contract; or 9
(c) Subject to subsection (3) of this section, the right to setoff or net any 10
termination value, payment amount, or other transfer obligation arising 11
under a netting agreement or qualified financial contract if the 12
counterparty or its guarantor is organized under the laws of the United 13
States, a state of the United States, or a foreign jurisdiction approved by the 14
Securities Valuation Office of the National Association of Insurance 15
Commissioners as eligible for netting; 16
(3) (a) Upon termination of a netting agreement or qualified financial contract: 17
1. The net or settlement amount owed by a nondefaulting party to an 18
insurer against which a delinquency proceeding has been initiated 19
shall be transferred to, or on the order of, the receiver, even if the 20
insurer is the defaulting party; 21
2. Any limited two-way payment provision in a netting agreement or 22
qualified financial contract with an insurer that has defaulted shall be 23
deemed a full two-way payment provision as against the defaulting 24
insurer; and 25
3. Any amount referenced in subparagraph 1. of this paragraph, except 26
to the extent it is subject to secondary liens or encumbrances, shall be 27 UNOFFICIAL COPY 25 RS HB 184/EN
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considered a general asset of the insurer. 1
(b) If a counterparty to a netting agreement or a qualified financial contract 2
with an insurer against which a delinquency proceeding has been initiated 3
terminates, liquidates, closes out, or accelerates the agreement or contract: 4
1. Damages shall be measured as of the date or dates of termination, 5
liquidation, close out, or acceleration; and 6
2. The amount of the claim for damages shall be actual direct 7
compensatory damages calculated in accordance with subsection (7) 8
of this section; 9
(4) A receiver shall not transfer a netting agreement or qualified financial contract 10
of an insurer unless the receiver transfers to one (1) counterparty, other than an 11
insurer subject to a delinquency proceeding, all: 12
(a) Netting agreements and qualified financial contracts between that 13
counterparty, or any affiliate of the counterparty, and the insurer; and 14
(b) Rights, obligations, guarantees, collateral, and credit support documents 15
related to the agreements and contracts referenced in paragraph (a) of this 16
subsection; 17
(5) (a) If a receiver transfers a netting agreement or qualified financial contract, 18
the receiver shall make best efforts to notify all counterparties to the 19
agreement or contract by noon, local time, of the next business day 20
following the transfer. 21
(b) As used in this subsection, "business day" means any day that is not a 22
Saturday, a Sunday, or a day on which the New York Stock Exchange or 23
the Federal Reserve Bank of New York is closed; 24
(6) (a) Except as provided in paragraph (b) of this subsection, a transfer of money 25
or other property made under a netting agreement or qualified financial 26
contract, including under any pledge, security, collateral, guarantee 27 UNOFFICIAL COPY 25 RS HB 184/EN
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arrangement, or other similar security arrangement or credit support 1
document relating to a netting agreement or qualified financial contract, 2
before the commencement of a delinquency proceeding shall not be: 3
1. Deemed fraudulent under this subtitle; or 4
2. Avoided by the receiver. 5
(b) A transfer may be deemed fraudulent and may be avoided by the receiver 6
under Section 8 of this Act if the transfer is made with actual intent to 7
hinder, delay, or defraud the insurer, the receiver, or any creditor; 8
(7) (a) If a receiver elects to disavow, reject, or repudiate a netting agreement or 9
qualified financial contract of an insurer under Section 6 of this Act or any 10
other section of this subtitle, the receiver shall disavow, reject, or repudiate 11
the entire netting agreement or qualified financial contract between the 12
insurer and a counterparty, or any affiliate of the counterparty, including 13
all related transactions in their entirety. 14
(b) If the receiver disavows, rejects, or repudiates a netting agreement or 15
qualified financial contract, a counterparty's claim against the estate of the 16
insurer shall be: 17
1. Determined as if the claim arose before the date of: 18
a. Except as provided in subdivision b. of this subparagraph, the 19
petition for liquidation; or 20
b. If a rehabilitation proceeding was converted to a liquidation, the 21
petition for rehabilitation; and 22
2. Limited to actual direct compensatory damages, determined as of the 23
date of disavowal, rejection, or repudiation. 24
(c) As used in paragraph (b) of this subsection, "actual direct compensatory 25
damages": 26
1. Includes normal and reasonable costs of cover or industry-standard 27 UNOFFICIAL COPY 25 RS HB 184/EN
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damages calculations that are applicable in the derivatives, securities, 1
or other applicable market; and 2
2. Does not include punitive damages, lost profits, lost opportunities, or 3
pain and suffering; 4
(8) This section shall not apply to netting agreements and qualified financial 5
contracts between an insurer and any of its affiliates; and 6
(9) All rights of a counterparty under this section shall apply to netting agreements 7
and qualified financial contracts entered into on behalf of: 8
(a) The general account of the insurer; and 9
(b) Any separate account of the insurer, if the assets of the separate account 10
are available only to a counterparty to the netting agreements and qualified 11
financial contracts entered into on behalf of that separate account. 12
Section 4. KRS 304.33-050 is amended to read as follows: 13
(1) Except as provided in KRS 304.33-052 and Section 3 of this Act, any receiver 14
appointed in a proceeding under this subtitle may at any time apply for and any 15
court of general jurisdiction may grant such restraining orders, temporary and 16
permanent injunctions, and other orders as are deemed necessary and proper to 17
prevent: 18
(a) The transaction of further business by or on behalf of the insurer; 19
(b) The transfer of property against which the receiver has a claim; 20
(c) Interference with the receiver or with the proceedings; 21
(d) Waste of the insurer's assets; 22
(e) Dissipation and transfer of bank accounts; 23
(f) The institution or further prosecution of any actions or proceedings by or on 24
behalf of the insurer; 25
(g) The institution or further prosecution of any action against the receiver or the 26
insurer, including but not limited to interpleader or other actions involving 27 UNOFFICIAL COPY 25 RS HB 184/EN
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assets against which the receiver has a claim; 1
(h) The obtaining of preferences, judgments, attachments, garnishments, or liens 2
against the insurer or its assets; 3
(i) The levying of execution against the insurer or its assets; 4
(j) The making of any sale or deed for nonpayment of taxes or assessments that 5
would lessen the value of the assets of the insurer; 6
(k) The withholding from the receiver of books, accounts, documents, or other 7
records relating to the business of the insurer; 8
(l) Any other threatened or contemplated action that might lessen the value of the 9
insurer's assets or prejudice the rights of policyholders, creditors, or 10
shareholders, or the administration of the proceeding; or 11
(m) Any suit or other action against a reinsurer of the insurer. 12
(2) The receiver may apply to any court outside of this state for the relief described in 13
subsection (1) of this section. 14
Section 5. KRS 304.33-170 is amended to read as follows: 15
(1) Stays in pending litigation. Except as provided in KRS 304.33-052 and Section 3 of 16
this Act, any court in this state before which any action or proceeding by or against 17
an insurer is pending when a rehabilitation order against the insurer is entered shall, 18
upon request of the rehabilitator, stay the action or proceeding for such time as is 19
necessary for the rehabilitator to obtain proper representation and prepare for 20
further proceedings. The court that entered the rehabilitation order shall order the 21
rehabilitator to take such action respecting the pending litigation as the court deems 22
necessary in the interests of justice and for the protection of creditors and 23
policyholders. The rehabilitator shall immediately consider all litigation pending 24
outside this state and shall petition the courts having jurisdiction over that litigation 25
for stays whenever necessary to protect the estate of the insurer. 26
(2) Statutes of limitations on claims by insurer. The time between the filing of a 27 UNOFFICIAL COPY 25 RS HB 184/EN
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petition for rehabilitation against an insurer and denial of the petition or an order of 1
rehabilitation shall not be considered to be a part of the time within which any 2
action may be commenced by the insurer. Any action by the insurer that might have 3
been commenced when the petition was filed may be commenced for at least sixty 4
(60) days after the order of rehabilitation is entered. 5
(3) Statutes of limitations on claims against insurer. The time between the filing of a 6
petition for rehabilitation against an insurer and the denial of the petition or an order 7
of rehabilitation shall not be considered to be a part of the time within which any 8
action may be commenced against the insurer. Any action against the insurer that 9
might have been commenced when the petition was filed may be commenced for at 10
least sixty (60) days after the order of rehabilitation is entered or the petition is 11
denied. 12
(4) A guaranty association or a foreign guaranty association shall have standing to 13
appear in any court proceeding concerning the rehabilitation of an insurer if such 14
association is or may become liable to act as a result of the rehabilitation. 15
Section 6. KRS 304.33-240 is amended to read as follows: 16
The liquidator shall report to the court monthly, or at other intervals specified by the 17
court, on the progress of the liquidation in whatever detail the court orders. Subject to 18
Section 3 of this Act, the liquidator may: 19
(1) Appoint a special deputy to act for him or her under this subtitle, and, subject to the 20
court's approval, determine his or her compensation. The special deputy shall have 21
all powers of the liquidator granted by this section. The special deputy shall serve at 22
the pleasure of the liquidator; 23
(2) Appoint or engage employees and agents, legal counsel, actuaries, accountants, 24
appraisers, consultants, and other personnel he or she deems necessary to assist in 25
the liquidation; 26
(3) Fix the compensation of persons under subsection (2) of this section, subject to the 27 UNOFFICIAL COPY 25 RS HB 184/EN
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control of the court; 1
(4) Defray all expenses of taking possession of, conserving, conducting, liquidating, 2
disposing of, or otherwise dealing with the business and property of the insurer. If 3
the property of the insurer does not contain sufficient cash or liquid assets to defray 4
the costs incurred, the liquidator may advance the costs so incurred out of any 5
available appropriation. Any amounts so paid shall be deemed expense of 6
administration and shall be repaid for the credit of the Department of Insurance out 7
of the first available moneys of the insurer; 8
(5) Hold hearings, subpoena witnesses and compel their attendance, administer oaths, 9
examine any person under oath, and compel any person to subscribe to his or her 10
testimony after it has been correctly reduced to writing, and in connection therewith 11
require the production of any books, papers, record, or other documents which he or 12
she deems relevant to the inquiry; 13
(6) Collect all debts and moneys due and claims belonging to the insurer, wherever 14
located, and for this purpose institute timely action in other jurisdictions to marshal 15
the assets of the insurer; forestall garnishment and attachment proceedings against 16
such debts; do such other acts as are necessary or expedient to collect, conserve or 17
protect its assets or property, including sell, compound, compromise, or assign for 18
purposes of collection, subject to court approval and upon such terms and 19
conditions as the liquidator deems best, any disputed claims; and pursue any 20
creditor's remedies available to enforce his or her claims. In lieu of collecting funds 21
representing unearned premium of a policyholder which are in the possession of the 22
insurer's agent with respect to the kinds of direct insurance protected under KRS 23
304.36-030, the liquidator may authorize the use of such funds to replace the 24
insurance coverage terminated pursuant to KRS 304.33-210, upon receipt from the 25
agent of appropriate notice of such replacement of the insurance coverage with an 26
insurer within sixty (60) days after the date of the liquidation order; 27 UNOFFICIAL COPY 25 RS HB 184/EN
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(7) Audit the books and records of all agents of the insurer insofar as these records 1
relate to the business activities of the insurer; 2
(8) Conduct public and private sales of the property of the insurer in a manner 3
prescribed by the court; 4
(9) Use assets of the estate to transfer policy obligations to a solvent assuming insurer, 5
if the transfer can be arranged without prejudice to applicable priorities under KRS 6
304.33-430; 7
(10) Acquire, hypothecate, encumber, lease, improve, sell, transfer, abandon, or 8
otherwise dispose of or deal with any property of the insurer at its market value or 9
upon such terms and conditions as are fair and reasonable, except that no 10
transaction involving property the market value of which exceeds ten thousand 11
dollars ($10,000) shall be concluded without express permission of the court. The 12
liquidator also may execute, acknowledge, and deliver any deeds, assignments, 13
releases, and other instruments necessary or proper to effectuate any sale of 14
property or other transaction in connection with the liquidation. In cases where real 15
property sold by the liquidator is located other than in the county where the 16
liquidation is pending, the liquidator shall cause to be filed with the county clerk for 17
the county in which the property is located a certified copy of the order appointing 18
him or her; 19
(11) Borrow money, subject to court approval, on the security of the insurer's assets or 20
without security and execute and deliver all documents necessary to that transaction 21
for the purpose of facilitating the liquidation; 22
(12) Enter into such contracts as are necessary to carry out the order to liquidate, and 23
affirm or disavow any contracts to which the insurer is a party, except the liquidator 24
shall not disavow, reject, or repudiate a federal home loan bank security agreement 25
or any pledge agreement, security agreement, collateral agreement, guarantee 26
agreement, or other similar arrangement or credit enhancement relating to a security 27 UNOFFICIAL COPY 25 RS HB 184/EN
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agreement to which a federal home loan bank is a party; 1
(13) Continue to prosecute and institute in the name of the insurer or in his or her own 2
name any suits and other legal proceedings, in this state or elsewhere, and abandon 3
the prosecution of claims he or she deems unprofitable to pursue further. If the 4
insurer is dissolved under KRS 304.33-220, he or she may apply to any court in this 5
state or elsewhere for leave to substitute himself or herself for the insurer as 6
plaintiff; 7
(14) Prosecute any action which may exist on[in] behalf of the creditors, members, 8
policyholders, or shareholders of the insurer against any officer of the insurer, or 9
any other person; 10
(15) Remove any records and property of the insurer to the offices of the commissioner 11
or to such other place as is convenient for the purposes of efficient and orderly 12
execution of the liquidation; 13
(16) Deposit in one (1) or more banks in this state such sums as are required for meeting 14
current administration expenses and dividend distributions; 15
(17) File any necessary documents for record in the office of any county clerk or record 16
office in this state or elsewhere where property of the insurer is located; 17
(18) Assert all defenses available to the insurer as against third persons, including 18
statutes of limitations, statutes of frauds, and the defense of usury. A waiver of any 19
defense by the insurer after a petition for liquidation has been filed shall not bind 20
the liquidator; 21
(19) Exercise and enforce all the rights, remedies and powers of any creditor, 22
shareholder, policyholder, or member, including any power to avoid any transfer or 23
lien that may be given by law and that is not included within KRS 304.33-290 to 24
304.33-310, inclusive; 25
(20) Intervene in any proceeding wherever instituted that might lead to the appointment 26
of a receiver or trustee, and act as the receiver or trustee whenever the appointment 27 UNOFFICIAL COPY 25 RS HB 184/EN
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is offered; 1
(21) Enter into agreements with any receiver or commissioner of any other state relating 2
to the rehabilitation, liquidation, conservation, or dissolution of an insurer doing 3
business in both states; 4
(22) Exercise all powers now held or hereafter conferred upon receivers by the laws of 5
this state not inconsistent with this subtitle; and 6
(23) The enumeration in this section of the powers and authority of the liquidator is not a 7
limitation upon him or her, nor does it exclude his or her right to do such other acts 8
not herein specifically enumerated or otherwise provided for as are necessary or 9
expedient for the accomplishment of or in aid of the purpose of liquidation. 10
Section 7. KRS 304.33-260 is amended to read as follows: 11
(1) Written notice. Every person who receives notice in the form prescribed in KRS 12
304.33-250 that an insurer for which he or she has acted as agent is the subject of a 13
liquidation order shall as soon as practicable give notice of the liquidation order. 14
The notice shall be sent by first-class mail to the last address contained in the 15
agent's records to each policyholder or other person named in any policy issued 16
through the agent by the company, if he or she has a record of the address of the 17
policyholder or other person. A policy shall be deemed issued through an agent if 18
the agent has a property interest in the expiration of the policy; or if the agent has 19
had in his or her possession a copy of the declarations of the policy at any time 20
during the life of the policy, except where the ownership of the expiration of the 21
policy has been transferred to another. The written notice shall include the name 22
and address of the insurer, the name and address of the agent, identification of the 23
policy impaired, and the nature of the impairment under KRS 304.33-210. Notice 24
by a general agent shall satisfy the notice requirement for any agents under contract 25
to him or her. 26
(2) Oral notice. So far as practicable, every insurance agent subject to subsection (1) of 27 UNOFFICIAL COPY 25 RS HB 184/EN
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this section shall give immediate oral notice, by telephone or otherwise, of the 1
liquidation order to the same persons to whom he or she is obligated to give written 2
notice. The oral notice shall include substantially the same information as the 3
written notice. 4
(3) The liquidator may waive the duties imposed by this section if he or she determines 5
that other notice to the policyholders of the insurer under liquidation is adequate. 6
(4) Transfer of assets. Every agent subject to subsection (1) of this section shall, 7
immediately upon receiving notice pursuant to KRS 304.33-250, and not later than 8
thirty (30) days thereafter, except as otherwise[ expressly] provided under Section 3 9
of this Act or KRS 304.33-240(6), transfer all assets of the insurer in possession of 10
the agent as of the date of liquidation or any time thereafter to the liquidator. If 11
there is any dispute as to whether assets which an agent is holding are assets of the 12
insurer, the agent shall petition the court for an order determining the ownership 13
thereof. 14
Section 8. KRS 304.33-290 is amended to read as follows: 15
(1) Definition and effect. Except as provided in subsection (5) of this section and 16
Section 3 of this Act:[,] 17
(a) Every transfer made or suffered and every obligation incurred by an insurer 18
within one (1) year prior to the filing of a successful petition for rehabilitation 19
or liquidation under this subtitle shall be fraudulent as to then existing and 20
future creditors if made or incurred without fair consideration, or with actual 21
intent to hinder, delay or defraud either existing or future creditors;[. ] 22
(b) A transfer made or an obligation incurred by an insurer ordered to be 23
rehabilitated or liquidated under this subtitle, which is fraudulent under this 24
section, may be avoided by the receiver, except as to a person who in good 25
faith is a purchaser, lienor, or obligee for a present fair equivalent value; and 26
except that any purchaser, lienor, or obligee, who in good faith has given a 27 UNOFFICIAL COPY 25 RS HB 184/EN
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consideration less than fair for such transfer, lien, or obligation, may retain the 1
property, lien, or obligation as security for repayment; and[. ] 2
(c) The court may, on due notice, order any such transfer or obligation to be 3
preserved for the benefit of the estate, and in that event the receiver shall 4
succeed to and may enforce the rights of the purchaser, lienor, or obligee. 5
(2) Perfection of transfers. 6
(a) Personal property. A transfer of property other than real property shall be 7
deemed to be made or suffered when it becomes so far perfected that no 8
subsequent lien obtainable by legal or equitable proceedings on a simple 9
contract could become superior to the rights of the transferee under subsection 10
(3) of KRS 304.33-310. 11
(b) Real property. A transfer of real property shall be deemed to be made or 12
suffered when it becomes so far perfected that no subsequent bona fide 13
purchaser from the insurer could obtain rights superior to the rights of the 14
transferee. 15
(c) Equitable liens. A transfer which creates an equitable lien shall not be deemed 16
to be perfected if there are available means by which a legal lien could be 17
created. 18
(d) Transfer not perfected prior to petition. Any transfer not perfected prior to the 19
filing of a petition for liquidation shall be deemed to be made immediately 20
before the filing of the successful petition. 21
(e) Actual creditors unnecessary. This subsection shall apply whether or not there 22
are or were creditors who might have obtained any liens or persons who might 23
have become bona fide purchasers. 24
(3) Fraudulent reinsurance transactions. Any transaction of the insurer with a reinsurer 25
shall be deemed fraudulent and may be avoided by the receiver under subsection (1) 26
of this section if: 27 UNOFFICIAL COPY 25 RS HB 184/EN
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(a) The transaction consists of the termination, adjustment or settlement of a 1
reinsurance contract in which the reinsurer is released from any part of its 2
duty to pay the originally specified share of losses that had occurred prior to 3
the time of the transaction, unless the reinsurer gives a present fair equivalent 4
value for the release; and 5
(b) Any part of the transaction took place within one (1) year prior to the date of 6
filing of the petition through which the receivership was commenced. 7
(4) Every person receiving any property from the insurer or any benefit thereof which 8
is a fraudulent transfer under this section shall be personally liable therefor and 9
shall be bound to account to the liquidator. 10
(5) (a) Except as provided in paragraph (b) of this subsection, any transfer of, and 11
any obligation to transfer, money or other property from an insurer-member to 12
the federal home loan bank under a federal home loan bank security, pledge, 13
collateral, or guarantee agreement, or other similar arrangement or credit 14
enhancement, shall not be deemed fraudulent and shall not be avoided by the 15
receiver under subsection (1) of this section if the agreement, arrangement, or 16
enhancement is: 17
1. Made in the ordinary course of business; and 18
2. Made in compliance with the applicable federal home loan bank 19
agreement. 20
(b) A transfer may be deemed fraudulent and may be avoided by the receiver 21
under subsection (1) of this section if the transfer is made with the intent to 22
hinder, delay, or defraud: 23
1. An insurer-member; 24
2. The receiver of the insurer-member; or 25
3. Existing or future creditors of the insurer-member. 26
Section 9. KRS 304.33-300 is amended to read as follows: 27 UNOFFICIAL COPY 25 RS HB 184/EN
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Except as provided in Section 3 of this Act: 1
(1) Effect of petition: real property. After a petition for rehabilitation or liquidation, a 2
transfer of any of the real property of the insurer made to a person acting in good 3
faith shall be valid against the receiver if made for a present fair equivalent value 4
or, if not made for a present fair equivalent value, then to the extent of the present 5
consideration actually paid therefor, for which amount the transferee shall have a 6
lien on the property so transferred. The recording of a copy of the petition for or 7
order of rehabilitation or liquidation with the county clerk in the county where any 8
real property in question is located shall be constructive notice of the 9
commencement of a proceeding in rehabilitation or liquidation. The exercise by a 10
court of the United States or any state of jurisdiction to authorize or effect a judicial 11
sale of real property of the insurer within any county in any state shall not be 12
impaired by the pendency of such a proceeding unless the copy is recorded in the 13
county prior to the consummation of the judicial sale;[.] 14
(2) Effect of petition: personal property. After a petition for rehabilitation or liquidation 15
and before either the receiver takes possession of the property of the insurer or an 16
order of rehabilitation or liquidation is granted: 17
(a) A transfer of any of the property of the insurer, other than real property, made 18
to a person acting in good faith shall be valid against the receiver if made for a 19
present fair equivalent value or, if not made for a present fair equivalent 20
value, then to the extent of the present consideration actually paid therefor, for 21
which amount the transferee shall have a lien on the property so transferred; 22
(b) A person indebted to the insurer or holding property of the insurer may, if 23
acting in good faith, pay the indebtedness or deliver the property or any part 24
thereof to the insurer or upon his or her order, with the same effect as if the 25
petition were not pending; 26
(c) A person having actual knowledge of the pending rehabilitation or liquidation 27 UNOFFICIAL COPY 25 RS HB 184/EN
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shall be deemed not to act in good faith unless he or she has reasonable cause 1
to believe that the petition is not well founded; and 2
(d) A person asserting the validity of a transfer under this section shall have the 3
burden of proof. Except as elsewhere provided in this section, no transfer by 4
or in behalf of the insurer after the date of the petition for liquidation by any 5
person other than the liquidator shall be valid against the liquidator;[.] 6
(3) Every person receiving any property from the insurer or any benefit thereof which 7
is a fraudulent transfer under this section shall be personally liable therefor and 8
shall be bound to account to the liquidator; and[.] 9
(4) Negotiability. Nothing in this subtitle shall impair the negotiability of currency or 10
negotiable instruments. 11
Section 10. KRS 304.33-310 is amended to read as follows: 12
Except as provided in Section 3 of this Act: 13
(1) Preferences. 14
(a) Preference defined. A preference is a transfer of any of the property of an 15
insurer to or for the benefit of a creditor, for or on account of an antecedent 16
debt made or suffered by the insurer within one (1) year before the filing of a 17
successful petition for liquidation under this subtitle, the effect of which 18
transfer may be to enable the creditor to obtain a greater percentage of his or 19
her debt than another creditor of the same class would receive. If a liquidation 20
order is entered while the insurer is already subject to a rehabilitation order, 21
transfers otherwise qualifying shall be deemed preferences if made or suffered 22
within one (1) year before the filing of the successful petition for 23
rehabilitation or within two (2) years before the filing of the successful 24
petition for liquidation, whichever time is shorter. 25
(b) Invalidation of preferences. Except as provided in subsection (10) of this 26
section, any preference may be avoided by the liquidator, if: 27 UNOFFICIAL COPY 25 RS HB 184/EN
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1. The insurer was insolvent at the time of the transfer; 1
2. The transfer was made within four (4) months before the filing of the 2
petition; 3
3. The creditor receiving it or to be benefited thereby or his or her agent 4
acting with reference thereto had reasonable cause to believe at the time 5
when the transfer was made that the insurer was insolvent or was about 6
to become insolvent; or 7
4. The creditor receiving it was an officer, employee, attorney or other 8
person who was in fact in a position of comparable influence in the 9
insurer to an officer whether or not he or she held such position, or any 10
shareholder holding directly or indirectly more than five percent (5%) of 11
any class of any equity security issued by the insurer, or any other 12
person with whom the insurer did not deal at arm's length. 13
Where the preference is voidable, the liquidator may recover the property or, 14
if it has been converted, its value from any person who has received or 15
converted the property, except a bona fide purchaser from or lienor of the 16
debtor's transferee for a present fair equivalent value. Where the bona fide 17
purchaser or lienor has given less than fair equivalent value, he or she shall 18
have a lien upon the property to the extent of the consideration actually given 19
by him or her. Where a preference by way of lien or security title is voidable, 20
the court may on due notice order the lien or title to be preserved for the 21
benefit of the estate, in which event the lien or title shall pass to the 22
liquidator;[.] 23
(2) Perfection of transfers. 24
(a) Personal property. A transfer of property other than real property is deemed to 25
be made or suffered when it becomes so far perfected that no subsequent lien 26
obtainable by legal or equitable proceedings on a simple contract could 27 UNOFFICIAL COPY 25 RS HB 184/EN
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become superior to the rights of the transferee. 1
(b) Real property. A transfer of real property is deemed to be made or suffered 2
when it becomes so far perfected that no subsequent bona fide purchaser from 3
the insurer could obtain rights superior to the rights of transferee. 4
(c) Equitable liens. A transfer which creates an equitable lien is not deemed to be 5
perfected if there are available means by which a legal lien could be created. 6
(d) Transfers not perfected prior to petition. A transfer not perfected prior to the 7
filing of a petition for liquidation shall be deemed to be made immediately 8
before the filing of the successful petition. 9
(e) Actual creditors unnecessary. This subsection applies whether or not there 10
were creditors who might have obtained liens or persons who might have 11
become bona fide purchasers;[.] 12
(3) Liens by legal or equitable proceedings. 13
(a) Definition. A lien obtainable by legal or equitable proceedings upon a simple 14
contract is one arising in the ordinary course of such proceedings upon the 15
entry or docketing of a judgment or decree, or upon attachment, garnishment, 16
execution or like process, whether before, upon or after judgment or decree 17
and whether before or upon levy. It does not include liens which under 18
applicable law are given a special priority over other liens which are prior in 19
time. 20
(b) When liens are superior. A lien obtainable by legal or equitable proceedings 21
could become superior to the rights of a transferee, or a purchaser could 22
obtain rights superior to the rights of a transferee within the meaning of 23
subsection (2) of this section, if such consequences would follow only from 24
the lien or purchase itself, or from the lien or purchase followed by any step 25
wholly within the control of the respective lienholder or purchaser, with or 26
without the aid of ministerial action by public officials. Such a lien could not, 27 UNOFFICIAL COPY 25 RS HB 184/EN
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however, become superior and such a purchase could not create superior 1
rights for the purpose of subsection (2) of this section through any acts 2
subsequent to the obtaining of such a lien or subsequent to such a purchase 3
which require the agreement or concurrence of any third party or which 4
require any further judicial action, or ruling;[.] 5
(4) Twenty-one day rule. A transfer of property for or on account of a new and 6
contemporaneous consideration which is deemed under subsection (2) of this 7
section to be made or suffered after the transfer because of delay in perfecting it 8
does not thereby become a transfer for or on account of an antecedent debt if any 9
acts required by the applicable law to be performed in order to perfect the transfer 10
as against liens or bona fide purchasers' rights are performed within twenty-one 11
(21) days or any period expressly allowed by the law, whichever is less. A transfer 12
to secure a future loan, if such a loan is actually made, or a transfer which becomes 13
security for a future loan shall have the same effect as a transfer for or on account 14
of a new and contemporaneous consideration;[.] 15
(5) Indemnifying transfers also voidable. If any lien deemed voidable under paragraph 16
(b) of subsection (1) of this section has been dissolved by the furnishing of a bond 17
or other obligation, the surety on which has been indemnified directly or indirectly 18
by the transfer of or the creation of a lien upon any property of an insurer before the 19
filing of a petition under this subtitle which results in a liquidation order, the 20
indemnifying transfer or lien shall also be deemed voidable;[.] 21
(6) Avoidance of lien. The property affected by any lien deemed voidable under 22
paragraph (b) of subsection (1) of this section and subsection (5) of this section is 23
discharged from the lien, and that property and any of the indemnifying property 24
transferred to or for the benefit of a surety shall pass to the liquidator, except that 25
the court may on due notice order the lien to be preserved for the benefit of the 26
estate and the court may direct that a conveyance be executed which is adequate to 27 UNOFFICIAL COPY 25 RS HB 184/EN
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evidence the title of the liquidator;[.] 1
(7) Hearings to determine rights. The court shall have summary jurisdiction of any 2
proceeding by the liquidator to hear and determine the rights of any parties under 3
this section. Reasonable notice of any hearing in the proceeding shall be given to all 4
parties in interest, including the obligee of a releasing bond or other like obligation. 5
Where an order is entered for the recovery of indemnifying property in kind or for 6
the avoidance of an indemnifying lien, the court, upon application of any party in 7
interest, shall in the same proceeding ascertain the value of the property or lien, and 8
if the value is less than the amount for which the property is indemnity or than the 9
amount of the lien, the transferee or lienholder may elect to retain the property or 10
lien upon payment of its value, as ascertained by the court, to the liquidator within 11
such reasonable times as the court fixes;[.] 12
(8) Surety's liability discharged. The liability of a surety under a releasing bond or 13
other like obligation shall be discharged to the extent of the value of the 14
indemnifying property recovered or the indemnifying lien nullified and avoided or, 15
where the property is retained under subsection (7) of this section to the extent of 16
the amount paid to the liquidator;[.] 17
(9) Setoff of new advances. If a creditor has been preferred and afterward in good faith 18
gives the insurer further credit without security of any kind, for property which 19
becomes a part of the insurer's estate, the amount of the new credit remaining 20
unpaid at the time of the petition may be set off against the preference which would 21
otherwise be recoverable from him or her; and[.] 22
(10) Federal home loan bank preferences. A liquidator shall not avoid any preference 23
arising under, or in connection with, a federal home loan bank security agreement 24
or any pledge agreement, security agreement, collateral agreement, guarantee 25
agreement, or other similar arrangement or credit enhancement relating to a security 26
agreement to which a federal home loan bank is a party. 27 UNOFFICIAL COPY 25 RS HB 184/EN
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Section 11. KRS 304.33-330 is amended to read as follows: 1
(1) Set-offs allowed in general. Mutual debt or mutual credits between the insurer and 2
another person in connection with any action or proceeding under this subtitle shall 3
be set off and the balance only shall be allowed or paid, except as provided in 4
subsection (2) of this section. 5
(2) Exceptions. Except as provided in Section 3 of this Act, no set-off or counterclaim 6
shall be allowed in favor of any person where: 7
(a) The obligation of the insurer to the person would not at the date of the filing 8
of a petition for liquidation entitle him or her to share as a claimant in the 9
assets of the insurer; 10
(b) The obligation of the insurer to the person was purchased by or transferred to 11
the person with a view to its being used as a set-off; 12
(c) The obligation of the person is to pay an assessment levied against the 13
members or subscribers of the insurer, or is to pay a balance upon a 14
subscription to the capital stock of the insurer, or is in any other way in the 15
nature of a capital contribution; or 16
(d) The obligation of the person is to pay earned premiums to the insurer. 17
However, the provisions of this paragraph shall only apply to reinsurance 18
contracts entered into prior to July 13, 2004. 19