By: Smithee H.B. No. 4477
A BILL TO BE ENTITLED
AN ACT
relating to assessments, coverage, deposits, and reinsurance of the
Texas Life, Accident, Health, and Hospital Service Insurance
Guaranty Association.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 463, Section 463.153(c), Insurance Code,
is amended to read as follows:
(c) The total amount of assessments on a member insurer for
each account under Section 463.105 may not exceed two percent of the
insurer's average annual premiums on the policies covered by the
account during the three calendar years preceding the year in which
the insurer became an impaired or insolvent insurer. If two or more
assessments are authorized in a calendar year with respect to
insurers that become impaired or insolvent in different calendar
years, the average annual premiums for purposes of the aggregate
assessment percentage limitation described by this subsection
shall be equal to the higher of the three-year average annual
premiums for the applicable subaccount or account as computed in
accordance with this section. If the maximum assessment and the
other assets of the association do not provide in a year an amount
sufficient to carry out the association's responsibilities, the
association shall make necessary additional assessments as soon as
this chapter permits.
SECTION 2. Chapter 463, Section 463.203(b), Insurance Code,
is amended by adding a new subsection (13) to read as follows:
(13) A policy or contract providing any hospital,
medical, prescription drug or other health care benefits pursuant
to Part C or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the
United States Code (commonly known as Medicare Part C & D) or any
regulations issued pursuant thereto.
SECTION 3. Chapter 463, Section 463.204, Insurance Code, is
amended to read as follows:
Sec. 463.204. OBLIGATIONS EXCLUDED. A contractual
obligation does not include:
(1) death benefits in an amount in excess of $300,000
or a net cash surrender or net cash withdrawal value in an amount in
excess of $100,000 under one or more policies on a single life;
(2) (A) $250,000 [$100,000] in the present value under
one or more annuity contracts issued with respect to a single life
under individual annuity policies or group annuity policies; or
(B) $5 million in unallocated annuity contract
benefits with respect to a single contract owner regardless of the
number of those contracts;
(3) an amount in excess of the following amounts,
including any net cash surrender or cash withdrawal values, under
one or more accident, health, accident and health, or long-term
care insurance policies on a single life:
(A) $500,000 for basic hospital,
medical-surgical, or major medical insurance, as those terms are
defined by this code or rules adopted by the commissioner;
(B) $300,000 for disability and long-term care
insurance, as those terms are defined by this code or rules adopted
by the commissioner; or
(C) $200,000 for coverages that are not defined
as basic hospital, medical-surgical, major medical, disability, or
longterm care insurance;
(4) an amount in excess of $250,000 [$100,000] in
present value annuity benefits, in the aggregate, including any net
cash surrender and net cash withdrawal values, with respect to each
individual participating in a governmental retirement benefit plan
established under Section 401, 403(b), or 457, Internal Revenue
Code of 1986 (26 U.S.C. Sections 401, 403(b) and 457), covered by an
unallocated annuity contract or the beneficiary or beneficiaries of
the individual if the individual is deceased;
(5) an amount in excess of $250,000 [$100,000] in
present value annuity benefits, in the aggregate, including any net
cash surrender and net cash withdrawal values, with respect to each
payee of a structured settlement annuity or the beneficiary or
beneficiaries of the payee if the payee is deceased;
(6) aggregate benefits in an amount in excess of
$300,000 with respect to a single life, except with respect to:
(A) benefits paid under basic hospital, medical-
surgical, or major medical insurance policies, described by
Subdivision (3)(A), in which case the aggregate benefits are
$500,000; and
(B) benefits paid to one owner of multiple
nongroup policies of life insurance, whether the policy owner is an
individual, firm, corporation, or other person, and whether the
persons insured are officers, managers, employees, or other
persons, in which case the maximum benefits are $5 million
regardless of the number of policies and contracts held by the
owner;
(7) an amount in excess of $5 million in benefits, with
respect to either one plan sponsor whose plans own directly or in
trust one or more unallocated annuity contracts not included in
Subdivision (4) irrespective of the number of contracts with
respect to the contract owner or plan sponsor or one contract owner
provided coverage under Section 463.201 (a)(3)(B), except that, if
one or more unallocated annuity contracts are covered contracts
under this chapter and are owned by a trust or other entity for the
benefit of two or more plan sponsors, coverage shall be afforded by
the association if the largest interest in the trust or entity
owning the contract or contracts is held by a plan sponsor whose
principal place of business is in this state, and in no event shall
the association be obligated to cover more then $5 million in
benefits with respect to all these unallocated contracts;
(8) any contractual obligations of the insolvent or
impaired insurer under a covered policy or contract that do not
materially affect the economic value of economic benefits of the
covered policy or contract; or
(9) punitive, exemplary, extracontractual, or bad
faith damages, regardless of whether the damages are:
(A) agreed to or assumed by an insurer or
insured; or
(B) imposed by a court.
SECTION 4. Chapter 463, Section 463.263(b), Insurance Code,
is amended to read as follows:
(b) The association is entitled to retain a portion of any
amount paid to the association under this section equal to the
percentage determined by dividing the aggregate amount of policy
owners' claims related to that insolvency for which the association
has provided statutory benefits by the aggregate amount of all
policy owners' claims in this state related to that insolvency and
shall remit to the domiciliary receiver the amount paid to the
association less the amount [and] retained under this section.
SECTION 5. Chapter 463, Insurance Code is amended by adding
new section 463.264 to read as follows:
463.264. REINSURANCE
(a) At any time within 180 days of the date of the order of
liquidation, the Association may elect to succeed to the rights and
obligations of the ceding member insurer that relate to policies or
annuities covered, in whole or in part, by the Association, in each
case under any one or more contracts entered into by the insolvent
insurer and its reinsurers and selected by the Association. Any
such assumption shall be effective as of the date of the order of
liquidation. The election shall be effected by the Association or
the National Organization of Life and Health Insurance Guaranty
Associations (NOLHGA) on its behalf sending written notice, return
receipt requested, to the affected reinsurers.
(b) To facilitate the earliest practicable decision about
whether to assume any of the contracts of reinsurance, and in order
to protect the financial position of the estate, the receiver and
each reinsurer of the ceding member insurer shall make available
upon request to the Association or to NOLHGA on its behalf as soon
as possible after commencement of formal delinquency proceedings
(1) copies of in-force contracts of reinsurance and
all related files and records relevant to the determination of
whether such contracts should be assumed; and
(2) notices of any defaults under the reinsurance
contacts or any known event or condition which with the passage of
time could become a default under the reinsurance contracts.
(c) The following Subsections (1) through (4) below shall
apply with respect to the agreements selected to reinsurance
contracts assumed by the Association:
(1) The Association shall be responsible for all
unpaid premiums due under the reinsurance contracts for periods
both before and after the date of the order of liquidation, and
shall be responsible for the performance of all other obligations
to be performed after the date of the order of liquidation, in each
case which relate to policies or annuities covered, in whole or in
part, by the Association. The Association may charge policies or
annuities covered in part by the Association, through reasonable
allocation methods, the costs for reinsurance in excess of the
obligations of the Association and shall provide notice and an
accounting of these charges to the liquidator;
(2) The Association shall be entitled to any amounts
payable by the reinsurer under the reinsurance contracts with
respect to losses or events that occur in periods after the date of
the order of liquidation and that relate to policies or annuities
covered, in whole or in part, by the Association, provided that,
upon receipt of any such amounts, the Association shall be obliged
to pay to the beneficiary under the policy or annuity on account of
which the amounts were paid a portion of the amount equal to the
lesser of:
(A) The amount received by the Association; and
(B) The excess of the amount received by the
Association over the amount equal to the benefits paid by the
Association on account of the policy or annuity less the retention
of the insurer applicable to the loss or event.
(3) Within 30 days following the Association's
election (the "election date"), the Association and each reinsurer
under contracts assumed by the Association shall calculate the net
balance due to or from the Association under each reinsurance
contract as of the election date with respect to policies or
annuities covered, in whole or in part, by the Association, which
calculation shall give full credit to all items paid by either the
insurer or its receiver or the reinsurer prior to the election date.
The reinsurer shall pay the receiver any amounts due for losses or
events prior to the date of the order of liquidation, subject to any
set-off for premiums unpaid for periods prior to the date, and the
Association or reinsurer shall pay any remaining balance due the
other, in each case within 5 days of the completion of the
aforementioned calculation. Any disputes over the amounts due to
either the Association or the reinsurer shall be resolved by
arbitration pursuant to the terms of the affected reinsurance
contracts or, if the contract contains no arbitration clause, as
otherwise provided by law. If the receiver has received any amounts
due the Association pursuant to Subsection 463.264(c)(2), the
receiver shall remit the same to the Association as promptly as
practicable.
(4) If the Association or receiver, on the
Association's behalf, within 60 days of the election date, pays the
unpaid premiums due for periods both before and after the election
date that relate to policies or annuities covered, in whole or in
part, by the Association, the reinsurer shall not be entitled to
terminate the reinsurance contracts for failure to pay premium
insofar as the reinsurance contracts relate to policies or
annuities covered, in whole or in part, by the Association, and
shall not be entitled to set off any unpaid amounts due under other
contracts, or unpaid amounts due from parties other than the
Association, against amounts due the Association.
(d) During the period from the date of the order of
liquidation until the election date (or, if the election date does
not occur, until 180 days after the date of the order of
liquidation),
(1) Neither the Association nor the reinsurer shall
have any rights or obligations under reinsurance contracts that the
Association has the right to assume under Subsection 463.264(a),
whether for periods prior to or after the date of the order of
liquidation; and
(2) The reinsurer, the receiver and the Association
shall, to the extent practicable, provide each other data and
records reasonably requested;
(3) Provided that once the Association has elected to
assume a reinsurance contract, the parties' rights and obligations
shall be governed by Section 463.264.
(e) If the Association does not elect to assume a
reinsurance contract by the election date pursuant to Subsection
463.264(a), the Association shall have no rights or obligations, in
each case for periods both before and after the date of the order of
liquidation, with respect to the reinsurance contract.
(f) When policies or annuities, or covered obligations with
respect thereto, are transferred to an assuming insurer,
reinsurance on the policies or annuities may also be transferred by
the Association, in the case of contracts assumed under Subsection
463.264(a), subject to the following:
(1) Unless the reinsurer and the assuming insurer
agree otherwise, the reinsurance contract transferred shall not
cover any new policies of insurance or annuities in addition to
those transferred;
(2) The obligations described in this Subsection
463.264 shall no longer apply with respect to matters arising after
the effective date of the transfer; and
(3) Notice shall be given in writing, return receipt
requested, by the transferring party to the affected reinsurer not
less than 30 days prior to the effective date of the transfer.
(g) The provisions of Subsection 463.264 shall supersede
the provisions of any law or of any affected reinsurance contract
that provides for or requires any payment of reinsurance proceeds,
on account of losses or events that occur in periods after the date
of the order of liquidation, to the receiver of the insolvent
insurer or any other person. The receiver shall remain entitled to
any amounts payable by the reinsurer under the reinsurance
contracts with respect to losses or events that occur in periods
prior to the date of the order of liquidation, subject to applicable
setoff provisions.
(h) Except as otherwise provided in this section, nothing in
Subsection 463.264 shall alter or modify the terms and conditions
of any reinsurance contract. Nothing in this section shall
abrogate or limit any rights of any reinsurer to claim that it is
entitled to rescind a reinsurance contract. Nothing in this
section shall give a policyholder or beneficiary an independent
cause of action against a reinsurer that is not otherwise set forth
in the reinsurance contract. Nothing in this section shall limit or
affect the Association's rights as a creditor of the estate against
the assets of the estate. Nothing in this section shall apply to
reinsurance agreements covering property or casualty risks.
SECTION 6. The change in law made by this Act to section
463.153(c) applies to assessments authorized on or after October 1,
2008 with respect to an insurer that first became impaired or
insolvent after September 1, 2005; all other changes in law made by
this Act apply only to an insurer that first becomes an impaired or
insolvent insurer on or after the effective date of this Act. An
insurer that becomes an impaired or insolvent insurer before the
effective date of this Act is governed by the law as it existed
immediately before that date, and that law is continued in effect
for that purpose.
SECTION 7. This Act takes effect September 1, 2009.