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HOUSE OF REPRESENTATIVES - FLOOR VERSION
STATE OF OKLAHOMA
1st Session of the 59th Legislature (2023)
COMMITTEE SUBSTITUTE
FOR ENGROSSED
SENATE BILL NO. 1069 By: Montgomery of the Senate
and
Sneed of the House
COMMITTEE SUBSTITUTE
An Act relating to insurance; amending 36 O.S. 2021,
Section 1901, as amended by Section 2, Chapter 119,
O.S.L. 2022 (36 O.S. Supp. 2022, Section 1901), which
relates to rehabilitat ion and liquidation; updating
statutory language; adding and modif ying definitions;
allowing certain persons and entities to exercise
certain contractual rights; establishing provisions
relating to agreement and contract terminations;
establishing requirem ents for insurance receivers;
exempting certain persons or entitie s from
provisions; providing for applicability of certain
provisions; providing for codification; and providing
an effective date.
BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKL AHOMA:
SECTION 1. AMENDATORY 36 O.S. 20 21, Section 1901, as
amended by Section 2, Chapter 119, O.S.L. 2022 (36 O.S. Supp. 2022,
Section 1901), is amended to read as follows:
Section 1901. For the purpose of Article 19 of the Oklahoma
Insurance Code:
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1. "Impairment" or "insolvency." The "insolvency" means the
capital of a stock insurer, or limited stock life, accident and
health insurer, the net assets of a Lloyds association, or the
surplus of a mutual or reciprocal insurer, shal l be deemed to be
impaired and the insurer shall be deemed to be insolvent, when such
insurer shall not be possessed of assets at least equal to all
liabilities and required reserves together with its total issued and
outstanding capital stock if a stock i nsurer, the net assets if a
Lloyds association, or the minimum su rplus if a mutual or reciproc al
insurer required by this code Code to be maintained for the kind or
kinds of insurance it is then authorized to transact;
2. "Insurer" means any person, firm, corporation, health
maintenance organizations, association or ag gregation of persons
doing an insurance business and subject to the insurance supervisory
authority of, or to liquidation, rehabilitation, reorganization or
conservation by the Insurance Comm issioner or the equivalent
insurance supervisory official of anot her state;
3. "Delinquency proceeding" means any proceeding commenced
against an insurer pursuant to this article for the purpose of
liquidating, rehabilitating, reorganizing or conserving s uch
insurer;
4. "State" means any state of the United States and also the
District of Columbia, Alaska, Hawaii, and Puerto Rico;
5. "Foreign country" means territory not in any state;
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6. "Domiciliary state" means the state in which an insurer is
incorporated or organized, or in the case of an insurer incorporated
or organized in a foreign countr y, the state in which such insurer,
having become authorized to do business in such state, has at the
commencement of delinquency proceedings, the largest amount of its
assets held in trust and assets held on deposit for the be nefit of
its policyholders or policyholders and creditors in the United
States, and any such insurer is deemed to be domiciled in such
state;
7. "Ancillary state" means any state other than a domiciliary
state;
8. "Reciprocal state" means any state other than this state
that has enacted a law that sets forth a scheme for the
administration of an insurer in receivership by the state 's
Insurance Commissioner insurance commissioner or comparable
insurance regulatory official;
9. "General assets" means all property, real, personal or
otherwise, not specifically mortgaged, pledged, deposited or
otherwise encumbered for the security or benefit of specified
persons or a limited class or classes of persons, and as to such
specifically encumbered property the term includes all such property
or its proceeds in excess of the amount necessary to discharge the
sum or sums secured thereby. Assets held in trust and assets held
on deposit for the security o r benefit of all policyholders or all
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policyholders and creditors in the United States shall b e deemed
general assets;
10. "Preferred claim" means any claim with respect to which the
law of the state or of the United States accords priority of
payments from the general assets of the insurer;
11. "Special deposit claim " means any claim secured by a
deposit made pursuant to statute for the security or benefit of a
limited class or classes of persons, but not including any general
assets;
12. "Secured claim" means any claim secured by mortgage, trust
deed, pledge, deposi t as security, escrow, or oth erwise, but not
including special deposit claim or claims against general assets.
The term also includes claims which more than four (4) months prior
to the commencement of delinquency proceedings in the state of the
insurer's domicile have become liens u pon specific assets by reason
of judicial process; and
13. "Receiver" means receiver, liquidator, rehabilitator, or
conservator as the context may require ; and
14. "Qualified financial contract " means a commodity contract,
forward contract, repurchase ag reement, securities contract, swap
agreement, and any similar agreement the Commissioner determines by
rule, regulation, resolution, or order to be a qualified fi nancial
contract.
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SECTION 2. NEW LAW A new section of law to be codifi ed
in the Oklahoma Statutes as Section 1926.1 of Title 36, unless there
is created a duplication in numbering, reads as follows:
A. As used in this section:
1. "Actual direct compensatory damages " means normal and
reasonable costs of cover or other reaso nable measures of damages
utilized in the derivatives, securities, or other market for the
contract and agreement claims. Provided, actual direct compensatory
damages shall not include punitive or exemplary damages , damages for
lost profit or lost opportu nity, or damages for pain and suffering;
2. "Business day" means a day other than a Saturday, Sunday, or
any day on which either the New York Stock Exchange or t he Federal
Reserve Bank of New York is closed;
3. "Contractual right" means any right set for th in a rule or
bylaw of a derivatives clearing organization, a multilateral
clearing organization, a national securities exchange, a national
securities association, a securities clearing agency, a contract
market designated under the federal Commodity Ex change Act, a
derivatives transaction execution facility registered under the
federal Commodity Exchange Act, or a board of trade or in a
resolution of the govern ing board thereof and any right, whether or
not evidenced in writing, arising under statutory or common law, or
under law merchant, or by reason of normal business practice; and
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4. "Walkaway clause" means a provision in a netting agreement
or a qualified financial contract which, after calculation of a
value of a party's position or an amount due to or from one of the
parties in accordance with its terms upon termination, liquidation,
or acceleration of the netting agreement or qualified financial
contract, either does not create a payment obligation of a pa rty or
extinguishes a payment obligation of a party in whole or in part
solely because of the party 's status as a non-defaulting party.
B. Notwithstanding any other provision of the Oklahoma
Insurance Code, including any other provision permitting the
modification of contracts, no person or enti ty shall be stayed or
prohibited from exercising:
1. A contractual right to cause termination, liquidation,
acceleration, or closeout of obligations under or in connection with
any netting agreement or qualified fi nancial contract with an
insurer because of:
a. the insolvency, financial condition, or default of the
insurer at any time, provided the right is enforceable
under applicable law other than the provision s of this
act, or
b. the commencement of a formal delinquency pro ceeding
under the provisions of this section;
2. Any right under a pledge, security, collateral,
reimbursement, guarantee agreement or arrangement, any other similar
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security agreement or ar rangement, or other credit enhancement
relating to one or more ne tting agreements or qualified financial
contracts;
3. Subject to any provision of Section 1928 of Title 36 of the
Oklahoma Statutes, any right to set off or net out any termination
value, payment amount, or other transfer obligation arising under or
in connection with one or more qua lified financial contracts where
the counterparty or its guarantor is organized under the laws of the
United States or a state or a foreign jurisdiction approved by the
Securities Valuation Office (SVO) of the National Associat ion of
Insurance Commissioner s (NAIC) as eligible for netting; or
4. If a counterparty to a master netting agreement or a
qualified financial contract with an insurer subject to a proceeding
under this section terminates, liquidates, closes out, or
accelerates the agreement or contra ct, damages shall be measured as
of the date or dates of termination, liquidation, closeout, or
acceleration. The amount of a claim for damages shall be actual
direct compensatory damages calculated in ac cordance with subsecti on
G of this section.
C. 1. Upon termination of a netting agreement or qualified
financial contract, the net or settlement amount, if any, owed by a
non-defaulting party to an insurer again st which an application or
petition has been filed under this sec tion shall be transferred to
or on the order of the receiver for the insurer, even if the insurer
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is the defaulting party, notwithstanding any walkaway clause in the
netting agreement or qual ified financial contract.
2. Any limited two-way payment or first method provision in a
netting agreement or qualified financial contract with an insurer
which has defaulted shall be deemed to be a full two -way payment or
second method provision as agains t the defaulting insurer. Any such
property or amount shall, exc ept to the extent it is subje ct to one
or more secondary liens or encumbrances or rights of netting or
setoff, be a general asset of the insurer.
D. In making any transfer of a netting agree ment or qualified
financial contract of an insurer subject to a p roceeding under this
section, the receiver shall either:
1. Transfer to one party, other than an insurer subject to a
proceeding under this section, all netting agreements and qualified
financial contracts between a counterparty or a ny affiliate of the
counterparty and the insurer wh ich is the subject of the proceeding,
including:
a. all rights and obligations of each party under each
netting agreement and qualified financial contract,
and
b. all property, including any guarantees or other credit
enhancement, securing any claims of ea ch party under
each netting agreement and qualified financial
contract; or
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2. Transfer none of the netting agreements, qualified financial
contracts, rights, obl igations, or property referred to in paragr aph
1 of this subsection, with respect to the count erparty and any
affiliate of the counterparty.
E. If a receiver for an insurer makes a transfer of one or more
netting agreements or qualified financial contract s, then the
receiver shall use its best eff orts to notify any per son who is
party to the netting agreements or qualified financial contracts of
the transfer by twelve o 'clock p.m. on the business day following
the transfer.
F. Notwithstanding any other pr ovision of the Oklahoma
Insurance Code, a receiver shall not avoi d a transfer of money or
other property arising under or in connection with a netting
agreement, qualified financial contract, or any pledge, security,
collateral or guarantee agreement, or a ny other similar security
arrangement or credit support document relating to a netting
agreement or qualified financial contract which is made before the
commencement of a formal delinquency proceeding under this Code.
Provided, however, a transfer may be avoided under Section 1926 of
Title 36 of the Oklahoma Statutes if the transfer was made with
actual intent to hinder, delay, or defraud the insurer, a receiver
appointed for the insurer, or existing or future creditors.
G. 1. In exercising the rights o f disaffirmance or repudiation
of a receiver with respect to any netting agreement or qualifie d
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financial contract to which an insurer is a party, the receiver for
the insurer shall either:
a. disaffirm or repudiate all netting agreements and
qualified financial contracts between a counterparty
or any affiliate of the c ounterparty and the insurer
which is the subject of the proceeding, or
b. disaffirm or repudiate none of the netting agreements
and qualified financial contracts referred to in
subparagraph a of this paragraph with respect to the
person or any affiliate of the person or entity.
2. Notwithstanding any other provision of this Code, any claim
of a counterparty against the estate arising from the receiver 's
disaffirmance or repudiation of a netti ng agreement or qualified
financial contract which has not been p reviously affirmed in the
liquidation or immediately preceding a conservation or
rehabilitation case shall be determined and shall be allowed or
disallowed as if the claim had arisen before t he date of the filing
of the petition for l iquidation or, if a co nservation or
rehabilitation proceeding is converted to a liquidation proceeding,
as if the claim had arisen before the date of the filing of the
petition for conservation or rehabilitation. The amount of the
claim shall be the actua l direct compensatory damages determined as
of the date of the disaffirmance or repudiation of the netting
agreement or qualified financial contract.
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H. The provisions of this section shall not apply to persons o r
entities who are affiliates of the insure r which is the subject of
the proceeding.
I. All rights of counterparties under this Code shall apply to
netting agreements and qualified financial contracts entered into on
behalf of the general account or separ ate accounts if the assets of
each separate account are available only to counterparties to
netting agreements and qualified financial contracts entered into on
behalf of the separate account.
SECTION 3. This act shall become effective Nov ember 1, 2023.
COMMITTEE REPORT BY: COMMITTEE ON INSURANCE, dated 04/05/2023 - DO
PASS, As Amended.