Texas 2011 - 82nd Regular

Texas Senate Bill SB1433 Compare Versions

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1	1	By: Carona S.B. No. 1433
2	2	(Smithee)
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to insurer receivership.
8	8	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
9	9	SECTION 1. Subsections (a) and (e), Section 443.005,
10	10	Insurance Code, are amended to read as follows:
11	11	(a) Except as authorized by Section 203(e)(3), Pub. L. No.
12	12	111-203, a [A] delinquency proceeding may not be commenced under
13	13	this chapter by a person other than the commissioner, and a court
14	14	does not have jurisdiction to entertain, hear, or determine any
15	15	delinquency proceeding commenced by any other person.
16	16	(e) If, on motion of any party, the receivership court finds
17	17	that any action, as a matter of substantial justice, should be tried
18	18	in a forum outside this state, the receivership court may enter an
19	19	appropriate order to stay further proceedings on the action in this
20	20	state. Except as to claims against the estate, nothing in this
21	21	chapter deprives a party of any contractual right to pursue
22	22	arbitration. A party in arbitration may bring a claim or
23	23	counterclaim against the estate, but the claim or counterclaim is
24	24	subject to this chapter [Section 443.209].
25	25	SECTION 2. Section 443.0135, Insurance Code, is amended by
26	26	amending Subsection (a) and adding Subsection (c) to read as
27	27	follows:
28	28	(a) Except as provided by Subsection (c), the [The] receiver
29	29	shall use a competitive bidding process in the selection of any
30	30	special deputies appointed under Section 443.102 or 443.154. The
31	31	process must include procedures to promote the participation of
32	32	historically underutilized businesses that have been certified by
33	33	the comptroller under Section 2161.061, Government Code.
34	34	(c) In the event of an emergency, the receiver may appoint a
35	35	special deputy without soliciting competitive bids. For the
36	36	purposes of this subsection, an emergency exists if:
37	37	(1) a court has made a determination described by
38	38	Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203; or
39	39	(2) the receiver concludes that the competitive
40	40	bidding process would delay the appointment of a special deputy and
41	41	that the delay could be hazardous to the insurer's policyholders or
42	42	creditors or the general public.
43	43	SECTION 3. Subsection (a), Section 443.052, Insurance Code,
44	44	is amended to read as follows:
45	45	(a) Except as authorized by Section 203(e)(3), Pub. L. No.
46	46	111-203, any [Any] formal delinquency proceeding against a person
47	47	shall be commenced by filing a petition in the name of the
48	48	commissioner or department.
49	49	SECTION 4. Section 443.057, Insurance Code, is amended to
50	50	read as follows:
51	51	Sec. 443.057. GROUNDS FOR CONSERVATION, REHABILITATION, OR
52	52	LIQUIDATION. A [The commissioner may file with a court in this
53	53	state a] petition with respect to an insurer domiciled in this state
54	54	or an unauthorized insurer for an order of rehabilitation or
55	55	liquidation may be filed on any one or more of the following
56	56	grounds:
57	57	(1) the insurer is impaired;
58	58	(2) the insurer is insolvent;
59	59	(3) the insurer is about to become insolvent, with
60	60	"about to become insolvent" being defined as reasonably anticipated
61	61	that the insurer will not have liquid assets to meet its next 90
62	62	days' current obligations;
63	63	(4) the insurer has neglected or refused to comply
64	64	with an order of the commissioner to make good within the time
65	65	prescribed by law any deficiency, whenever its capital and minimum
66	66	required surplus, if a stock company, or its surplus, if a company
67	67	other than stock, has become impaired;
68	68	(5) the insurer, its parent company, its subsidiaries,
69	69	or its affiliates have converted, wasted, or concealed property of
70	70	the insurer or have otherwise improperly disposed of, dissipated,
71	71	used, released, transferred, sold, assigned, hypothecated, or
72	72	removed the property of the insurer;
73	73	(6) the insurer is in a condition such that it could
74	74	not meet the requirements for organization and authorization as
75	75	required by law, except as to the amount of the original surplus
76	76	required of a stock company under Title 6, and except as to the
77	77	amount of the surplus required of a company other than a stock
78	78	company in excess of the minimum surplus required to be maintained;
79	79	(7) the insurer, its parent company, its subsidiaries,
80	80	or its affiliates have concealed, removed, altered, destroyed, or
81	81	failed to establish and maintain books, records, documents,
82	82	accounts, vouchers, and other pertinent material adequate for the
83	83	determination of the financial condition of the insurer by
84	84	examination under Chapter 401 or has failed to properly administer
85	85	claims or maintain claims records that are adequate for the
86	86	determination of its outstanding claims liability;
87	87	(8) at any time after the issuance of an order under
88	88	Section 404.003 or Chapter 441, or at the time of instituting any
89	89	proceeding under this chapter, it appears to the commissioner that,
90	90	upon good cause shown, it would not be in the best interest of the
91	91	policyholders, creditors, or the public to proceed with the conduct
92	92	of the business of the insurer;
93	93	(9) the insurer is in a condition such that the further
94	94	transaction of business would be hazardous financially, according
95	95	to Subchapter A, Chapter 404, or otherwise, to its policyholders,
96	96	creditors, or the public;
97	97	(10) there is reasonable cause to believe that there
98	98	has been embezzlement from the insurer, wrongful sequestration or
99	99	diversion of the insurer's property, forgery or fraud affecting the
100	100	insurer, or other illegal conduct in, by, or with respect to the
101	101	insurer that, if established, would endanger assets in an amount
102	102	threatening the solvency of the insurer;
103	103	(11) control of the insurer is in a person who is:
104	104	(A) dishonest or untrustworthy; or
105	105	(B) so lacking in insurance company managerial
106	106	experience or capability as to be hazardous to policyholders,
107	107	creditors, or the public;
108	108	(12) any person who in fact has executive authority in
109	109	the insurer, whether an officer, manager, general agent, director,
110	110	trustee, employee, shareholder, or other person, has refused to be
111	111	examined under oath by the commissioner concerning the insurer's
112	112	affairs, whether in this state or elsewhere or if examined under
113	113	oath, refuses to divulge pertinent information reasonably known to
114	114	the person; and after reasonable notice of the fact, the insurer has
115	115	failed promptly and effectively to terminate the employment and
116	116	status of the person and all the person's influence on management;
117	117	(13) after demand by the commissioner under Chapter
118	118	401 or under this chapter, the insurer has failed promptly to make
119	119	available for examination any of its own property, books, accounts,
120	120	documents, or other records, or those of any subsidiary or related
121	121	company within the control of the insurer or of any person having
122	122	executive authority in the insurer, so far as they pertain to the
123	123	insurer;
124	124	(14) without first obtaining the written consent of
125	125	the commissioner, the insurer has transferred, or attempted to
126	126	transfer, in a manner contrary to Chapter 823 or any law relating to
127	127	bulk reinsurance, substantially its entire property or business, or
128	128	has entered into any transaction the effect of which is to merge,
129	129	consolidate, or reinsure substantially its entire property or
130	130	business in or with the property or business of any other person;
131	131	(15) the insurer or its property has been or is the
132	132	subject of an application for the appointment of a receiver,
133	133	trustee, custodian, conservator, sequestrator, or similar
134	134	fiduciary of the insurer or its property otherwise than as
135	135	authorized under the insurance laws of this state;
136	136	(16) within the previous five years, the insurer has
137	137	wilfully and continuously violated its charter, articles of
138	138	incorporation or bylaws, any insurance law of this state, or any
139	139	valid order of the commissioner;
140	140	(17) the insurer has failed to pay within 60 days after
141	141	the due date any obligation to any state or political subdivision of
142	142	a state or any judgment entered in any state, if the court in which
143	143	the judgment was entered had jurisdiction over the subject matter,
144	144	except that nonpayment is not a ground until 60 days after any good
145	145	faith effort by the insurer to contest the obligation has been
146	146	terminated, whether it is before the commissioner or in the courts;
147	147	(18) the insurer has systematically engaged in the
148	148	practice of reaching settlements with and obtaining releases from
149	149	claimants, and then unreasonably delayed payment, failed to pay the
150	150	agreed-upon settlements, or systematically attempted to compromise
151	151	with claimants or other creditors on the ground that it is
152	152	financially unable to pay its claims or obligations in full;
153	153	(19) the insurer has failed to file its annual report
154	154	or other financial report required by statute within the time
155	155	allowed by law;
156	156	(20) the board of directors or the holders of a
157	157	majority of the shares entitled to vote, or a majority of those
158	158	individuals entitled to the control of those entities specified by
159	159	Section 443.003, request or consent to rehabilitation or
160	160	liquidation under this chapter;
161	161	(21) the insurer does not comply with its domiciliary
162	162	state's requirements for issuance to it of a certificate of
163	163	authority, or its certificate of authority has been revoked by its
164	164	state of domicile; [or]
165	165	(22) when authorized by department rules; or
166	166	(23) a court has made a determination described by
167	167	Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203.
168	168	SECTION 5. Section 443.058, Insurance Code, is amended to
169	169	read as follows:
170	170	Sec. 443.058. ENTRY OF ORDER. If [the commissioner
171	171	establishes] any of the grounds provided in Section 443.057 are
172	172	established, the receivership court shall grant the petition and
173	173	issue the order of rehabilitation or liquidation requested in the
174	174	petition.
175	175	SECTION 6. Section 443.102, Insurance Code, is amended by
176	176	adding Subsection (f) to read as follows:
177	177	(f) The rehabilitator may exercise all powers:
178	178	(1) possessed on August 31, 2005, by a receiver
179	179	appointed for the purpose of rehabilitating an insurer; or
180	180	(2) conferred on a rehabilitator after that date by
181	181	the laws of this state that are not inconsistent with this chapter.
182	182	SECTION 7. Subsection (i), Section 443.154, Insurance Code,
183	183	is amended to read as follows:
184	184	(i) The liquidator may, subject to Subsection (y) [(x)],
185	185	acquire, hypothecate, encumber, lease, improve, sell, transfer,
186	186	abandon, or otherwise dispose of or deal with any property of the
187	187	estate at its market value or upon terms and conditions that are
188	188	fair and reasonable. The liquidator also has the power to execute,
189	189	acknowledge, and deliver any and all deeds, assignments, releases,
190	190	and other instruments necessary or proper to effectuate any sale of
191	191	property or other transaction in connection with the liquidation.
192	192	SECTION 8. Subsection (b), Section 443.211, Insurance Code,
193	193	is amended to read as follows:
194	194	(b) Except as provided by Subsection (a), any reinsurance
195	195	shall be payable to the receiver under a policy reinsured by the
196	196	assuming insurer on the basis of claims:
197	197	(1) allowed under Section 443.253; or [and]
198	198	(2) paid under:
199	199	(A) Chapter 462, 463, or 2602; or
200	200	(B) the guaranty associations of other states.
201	201	SECTION 9. Subsection (e), Section 443.253, Insurance Code,
202	202	is amended to read as follows:
203	203	(e) A judgment or order against an insured or the insurer
204	204	entered after the date of the initial filing of a successful
205	205	petition for receivership, or within 120 days before the initial
206	206	filing of the petition, or [and] a judgment or order against an
207	207	insured or the insurer entered at any time by default or by
208	208	collusion need not be considered as evidence of liability or of the
209	209	amount of damages.
210	210	SECTION 10. Section 443.301, Insurance Code, is amended to
211	211	read as follows:
212	212	Sec. 443.301. PRIORITY OF DISTRIBUTION. The priority of
213	213	payment of distributions on unsecured claims must be in accordance
214	214	with the order in which each class of claims is set forth in this
215	215	section. Every claim in each class shall be paid in full, or
216	216	adequate funds retained for their payment, before the members of
217	217	the next class receive payment, and all claims within a class must
218	218	be paid substantially the same percentage of the amount of the
219	219	claim. Except as provided by Subsections (a)(2), (a)(3), (i), and
220	220	(k), subclasses may not be established within a class. No claim by
221	221	a shareholder, policyholder, or other creditor shall be permitted
222	222	to circumvent the priority classes through the use of equitable
223	223	remedies. The order of distribution of claims shall be:
224	224	(a) Class 1. (1) The costs and expenses of administration
225	225	expressly approved or ratified by the liquidator, including the
226	226	following:
227	227	(A) the actual and necessary costs of preserving
228	228	or recovering the property of the insurer;
229	229	(B) reasonable compensation for all services
230	230	rendered on behalf of the administrative supervisor or receiver;
231	231	(C) any necessary filing fees;
232	232	(D) the fees and mileage payable to witnesses;
233	233	(E) unsecured loans obtained by the receiver; and
234	234	(F) expenses, if any, approved by the
235	235	rehabilitator of the insurer and incurred in the course of the
236	236	rehabilitation that are unpaid at the time of the entry of the order
237	237	of liquidation.
238	238	(2) The reasonable expenses of a guaranty association,
239	239	including overhead, salaries and other general administrative
240	240	expenses allocable to the receivership to include administrative
241	241	and claims handling expenses and expenses in connection with
242	242	arrangements for ongoing coverage, other than expenses incurred in
243	243	the performance of duties under Section 462.002(3), 463.108,
244	244	463.111, 463.113, 463.353, or 2602.113 or similar duties under the
245	245	statute governing a similar organization in another state. In the
246	246	case of the Texas Property and Casualty Insurance Guaranty
247	247	Association and other property and casualty guaranty associations,
248	248	the expenses shall include loss adjustment expenses, including
249	249	adjusting and other expenses and defense and cost containment
250	250	expenses. In the event that there are insufficient assets to pay
251	251	all of the costs and expenses of administration under Subsection
252	252	(a)(1) and the expenses of a guaranty association, the costs and
253	253	expenses under Subsection (a)(1) shall have priority over the
254	254	expenses of a guaranty association. In this event, the expenses of
255	255	a guaranty association shall be paid on a pro rata basis after the
256	256	payment of costs and expenses under Subsection (a)(1) in full.
257	257	(3) For purposes of Subsection (a)(1)(E), any
258	258	unsecured loan obtained by the receiver, unless by its terms it
259	259	otherwise provides, has priority over all other costs of
260	260	administration. Absent agreement to the contrary, all claims in
261	261	this subclass share pro rata.
262	262	(4) Except as expressly approved by the receiver, any
263	263	expenses arising from a duty to indemnify the directors, officers,
264	264	or employees of the insurer are excluded from this class and, if
265	265	allowed, are Class 5 claims.
266	266	(b) Class 2. (1) All claims under policies of insurance,
267	267	including third-party claims, claims under nonassessable policies
268	268	for unearned premium, claims of obligees and, subject to the
269	269	discretion of the receiver, completion contractors under surety
270	270	bonds and surety undertakings other than bail bonds, mortgage or
271	271	financial guaranties, or other forms of insurance offering
272	272	protection against investment risk, claims by principals under
273	273	surety bonds and surety undertakings for wrongful dissipation of
274	274	collateral by the insurer or its agents, and claims incurred during
275	275	the extension of coverage provided for in Section 443.152.
276	276	(2) All other claims incurred in fulfilling the
277	277	statutory obligations of a guaranty association not included in
278	278	Class 1, including indemnity payments on covered claims and, in the
279	279	case of the Life, Accident, Health, and Hospital Service Insurance
280	280	Guaranty Association or another life and health guaranty
281	281	association, all claims as a creditor of the impaired or insolvent
282	282	insurer for all payments of and liabilities incurred on behalf of
283	283	covered claims or covered obligations of the insurer and for the
284	284	funds needed to reinsure those obligations with a solvent insurer.
285	285	(3) Claims for benefits under a health care plan
286	286	issued by a health maintenance organization.
287	287	(4) Claims under insurance policies or contracts for
288	288	benefits issued by an unauthorized insurer.
289	289	(5) Notwithstanding any provision of this chapter, the
290	290	following claims are excluded from Class 2 priority:
291	291	(A) [(1)] obligations of the insolvent insurer
292	292	arising out of reinsurance contracts;
293	293	(B) [(2)] obligations, excluding unearned
294	294	premium claims on policies other than reinsurance agreements,
295	295	incurred after:
296	296	(i) [(A)] the expiration date of the
297	297	insurance policy;
298	298	(ii) [(B)] the policy has been replaced by
299	299	the insured or canceled at the insured's request; or
300	300	(iii) [(C)] the policy has been canceled as
301	301	provided by this chapter;
302	302	(C) [(3)] obligations to insurers, insurance
303	303	pools, or underwriting associations and their claims for
304	304	contribution, indemnity, or subrogation, equitable or otherwise;
305	305	(D) [(4)] any claim that is in excess of any
306	306	applicable limits provided in the insurance policy issued by the
307	307	insurer;
308	308	(E) [(5)] any amount accrued as punitive or
309	309	exemplary damages unless expressly covered under the terms of the
310	310	policy;
311	311	(F) [(6)] tort claims of any kind against the
312	312	insurer and claims against the insurer for bad faith or wrongful
313	313	settlement practices; and
314	314	(G) [(7)] claims of the guaranty associations
315	315	for assessments not paid by the insurer, which must be paid as
316	316	claims in Class 5.
317	317	(c) Class 3. Claims of the federal government not included
318	318	in Class 2 [3].
319	319	(d) Class 4. Debts due employees for services or benefits
320	320	to the extent that the debts do not exceed $5,000 or two months
321	321	salary, whichever is the lesser, and represent payment for services
322	322	performed within one year before the entry of the initial order of
323	323	receivership. This priority is in lieu of any other similar
324	324	priority that may be authorized by law as to wages or compensation
325	325	of employees.
326	326	(e) Class 5. Claims of other unsecured creditors not
327	327	included in Classes 1 through 4, including claims under reinsurance
328	328	contracts, claims of guaranty associations for assessments not paid
329	329	by the insurer, and other claims excluded from Class 2.
330	330	(f) Class 6. Claims of any state or local governments,
331	331	except those specifically classified elsewhere in this section.
332	332	Claims of attorneys for fees and expenses owed them by an insurer
333	333	for services rendered in opposing a formal delinquency proceeding.
334	334	In order to prove the claim, the claimant must show that the insurer
335	335	that is the subject of the delinquency proceeding incurred the fees
336	336	and expenses based on its best knowledge, information, and belief,
337	337	formed after reasonable inquiry, indicating opposition was in the
338	338	best interests of the insurer, was well grounded in fact, and was
339	339	warranted by existing law or a good faith argument for the
340	340	extension, modification, or reversal of existing law, and that
341	341	opposition was not pursued for any improper purpose, such as to
342	342	harass or to cause unnecessary delay or needless increase in the
343	343	cost of the litigation.
344	344	(g) Class 7. Claims of any state or local government for a
345	345	penalty or forfeiture, but only to the extent of the pecuniary loss
346	346	sustained from the act, transaction, or proceeding out of which the
347	347	penalty or forfeiture arose, with reasonable and actual costs
348	348	occasioned thereby. The balance of the claims must be treated as
349	349	Class 9 claims under Subsection (i).
350	350	(h) Class 8. Except as provided in Sections 443.251(b) and
351	351	(d), late filed claims that would otherwise be classified in
352	352	Classes 2 through 7.
353	353	(i) Class 9. Surplus notes, capital notes or contribution
354	354	notes or similar obligations, premium refunds on assessable
355	355	policies, and any other claims specifically assigned to this class.
356	356	Claims in this class are subject to any subordination agreements
357	357	related to other claims in this class that existed before the entry
358	358	of the liquidation order.
359	359	(j) Class 10. Interest on allowed claims of Classes 1
360	360	through 9, according to the terms of a plan proposed by the
361	361	liquidator and approved by the receivership court.
362	362	(k) Class 11. Claims of shareholders or other owners
363	363	arising out of their capacity as shareholders or other owners, or
364	364	any other capacity, except as they may be qualified in Class 2, 5,
365	365	or 10. Claims in this class are subject to any subordination
366	366	agreements related to other claims in this class that existed
367	367	before the entry of the liquidation order.
368	368	SECTION 11. Subsections (a) and (b), Section 443.303,
369	369	Insurance Code, are amended to read as follows:
370	370	(a) For purposes of this section, "distributable assets"
371	371	means all general assets of the liquidation estate less:
372	372	(1) amounts reserved, to the extent necessary and
373	373	appropriate, for the entire Section 443.301(a) expenses of the
374	374	liquidation through and after its closure; and
375	375	(2) to the extent necessary and appropriate, reserves
376	376	for distributions on claims other than those of the guaranty
377	377	associations falling within the priority classes of claims
378	378	established in Section 443.301(b) [443.301(c)].
379	379	(b) Early access payments to guaranty associations must be
380	380	made as soon as possible after the entry of a liquidation order and
381	381	as frequently as possible after the entry of the order, but at least
382	382	annually if distributable assets are available to be distributed to
383	383	the guaranty associations, and must be in amounts consistent with
384	384	this section. Amounts advanced to an affected guaranty association
385	385	pursuant to this section shall be accounted for as advances against
386	386	distributions to be made under Section 443.302. Where sufficient
387	387	distributable assets are available, amounts advanced are not
388	388	limited to the claims and expenses paid to date by the guaranty
389	389	associations; however, the liquidator may not distribute
390	390	distributable assets to the guaranty associations in excess of the
391	391	anticipated entire claims of the guaranty associations falling
392	392	within the priority classes of claims established in Sections
393	393	443.301(a) and (b) [443.301(b) and (c)].
394	394	SECTION 12. The changes in law made by this Act apply to a
395	395	receivership proceeding pending on the effective date of this Act
396	396	or initiated on or after the effective date of this Act.
397	397	SECTION 13. This Act takes effect September 1, 2011.