By: Carona S.B. No. 1433
(Smithee)
A BILL TO BE ENTITLED
AN ACT
relating to insurer receivership.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subsections (a) and (e), Section 443.005,
Insurance Code, are amended to read as follows:
(a) Except as authorized by Section 203(e)(3), Pub. L. No.
111-203, a [A] delinquency proceeding may not be commenced under
this chapter by a person other than the commissioner, and a court
does not have jurisdiction to entertain, hear, or determine any
delinquency proceeding commenced by any other person.
(e) If, on motion of any party, the receivership court finds
that any action, as a matter of substantial justice, should be tried
in a forum outside this state, the receivership court may enter an
appropriate order to stay further proceedings on the action in this
state. Except as to claims against the estate, nothing in this
chapter deprives a party of any contractual right to pursue
arbitration. A party in arbitration may bring a claim or
counterclaim against the estate, but the claim or counterclaim is
subject to this chapter [Section 443.209].
SECTION 2. Section 443.0135, Insurance Code, is amended by
amending Subsection (a) and adding Subsection (c) to read as
follows:
(a) Except as provided by Subsection (c), the [The] receiver
shall use a competitive bidding process in the selection of any
special deputies appointed under Section 443.102 or 443.154. The
process must include procedures to promote the participation of
historically underutilized businesses that have been certified by
the comptroller under Section 2161.061, Government Code.
(c) In the event of an emergency, the receiver may appoint a
special deputy without soliciting competitive bids. For the
purposes of this subsection, an emergency exists if:
(1) a court has made a determination described by
Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203; or
(2) the receiver concludes that the competitive
bidding process would delay the appointment of a special deputy and
that the delay could be hazardous to the insurer's policyholders or
creditors or the general public.
SECTION 3. Subsection (a), Section 443.052, Insurance Code,
is amended to read as follows:
(a) Except as authorized by Section 203(e)(3), Pub. L. No.
111-203, any [Any] formal delinquency proceeding against a person
shall be commenced by filing a petition in the name of the
commissioner or department.
SECTION 4. Section 443.057, Insurance Code, is amended to
read as follows:
Sec. 443.057. GROUNDS FOR CONSERVATION, REHABILITATION, OR
LIQUIDATION. A [The commissioner may file with a court in this
state a] petition with respect to an insurer domiciled in this state
or an unauthorized insurer for an order of rehabilitation or
liquidation may be filed on any one or more of the following
grounds:
(1) the insurer is impaired;
(2) the insurer is insolvent;
(3) the insurer is about to become insolvent, with
"about to become insolvent" being defined as reasonably anticipated
that the insurer will not have liquid assets to meet its next 90
days' current obligations;
(4) the insurer has neglected or refused to comply
with an order of the commissioner to make good within the time
prescribed by law any deficiency, whenever its capital and minimum
required surplus, if a stock company, or its surplus, if a company
other than stock, has become impaired;
(5) the insurer, its parent company, its subsidiaries,
or its affiliates have converted, wasted, or concealed property of
the insurer or have otherwise improperly disposed of, dissipated,
used, released, transferred, sold, assigned, hypothecated, or
removed the property of the insurer;
(6) the insurer is in a condition such that it could
not meet the requirements for organization and authorization as
required by law, except as to the amount of the original surplus
required of a stock company under Title 6, and except as to the
amount of the surplus required of a company other than a stock
company in excess of the minimum surplus required to be maintained;
(7) the insurer, its parent company, its subsidiaries,
or its affiliates have concealed, removed, altered, destroyed, or
failed to establish and maintain books, records, documents,
accounts, vouchers, and other pertinent material adequate for the
determination of the financial condition of the insurer by
examination under Chapter 401 or has failed to properly administer
claims or maintain claims records that are adequate for the
determination of its outstanding claims liability;
(8) at any time after the issuance of an order under
Section 404.003 or Chapter 441, or at the time of instituting any
proceeding under this chapter, it appears to the commissioner that,
upon good cause shown, it would not be in the best interest of the
policyholders, creditors, or the public to proceed with the conduct
of the business of the insurer;
(9) the insurer is in a condition such that the further
transaction of business would be hazardous financially, according
to Subchapter A, Chapter 404, or otherwise, to its policyholders,
creditors, or the public;
(10) there is reasonable cause to believe that there
has been embezzlement from the insurer, wrongful sequestration or
diversion of the insurer's property, forgery or fraud affecting the
insurer, or other illegal conduct in, by, or with respect to the
insurer that, if established, would endanger assets in an amount
threatening the solvency of the insurer;
(11) control of the insurer is in a person who is:
(A) dishonest or untrustworthy; or
(B) so lacking in insurance company managerial
experience or capability as to be hazardous to policyholders,
creditors, or the public;
(12) any person who in fact has executive authority in
the insurer, whether an officer, manager, general agent, director,
trustee, employee, shareholder, or other person, has refused to be
examined under oath by the commissioner concerning the insurer's
affairs, whether in this state or elsewhere or if examined under
oath, refuses to divulge pertinent information reasonably known to
the person; and after reasonable notice of the fact, the insurer has
failed promptly and effectively to terminate the employment and
status of the person and all the person's influence on management;
(13) after demand by the commissioner under Chapter
401 or under this chapter, the insurer has failed promptly to make
available for examination any of its own property, books, accounts,
documents, or other records, or those of any subsidiary or related
company within the control of the insurer or of any person having
executive authority in the insurer, so far as they pertain to the
insurer;
(14) without first obtaining the written consent of
the commissioner, the insurer has transferred, or attempted to
transfer, in a manner contrary to Chapter 823 or any law relating to
bulk reinsurance, substantially its entire property or business, or
has entered into any transaction the effect of which is to merge,
consolidate, or reinsure substantially its entire property or
business in or with the property or business of any other person;
(15) the insurer or its property has been or is the
subject of an application for the appointment of a receiver,
trustee, custodian, conservator, sequestrator, or similar
fiduciary of the insurer or its property otherwise than as
authorized under the insurance laws of this state;
(16) within the previous five years, the insurer has
wilfully and continuously violated its charter, articles of
incorporation or bylaws, any insurance law of this state, or any
valid order of the commissioner;
(17) the insurer has failed to pay within 60 days after
the due date any obligation to any state or political subdivision of
a state or any judgment entered in any state, if the court in which
the judgment was entered had jurisdiction over the subject matter,
except that nonpayment is not a ground until 60 days after any good
faith effort by the insurer to contest the obligation has been
terminated, whether it is before the commissioner or in the courts;
(18) the insurer has systematically engaged in the
practice of reaching settlements with and obtaining releases from
claimants, and then unreasonably delayed payment, failed to pay the
agreed-upon settlements, or systematically attempted to compromise
with claimants or other creditors on the ground that it is
financially unable to pay its claims or obligations in full;
(19) the insurer has failed to file its annual report
or other financial report required by statute within the time
allowed by law;
(20) the board of directors or the holders of a
majority of the shares entitled to vote, or a majority of those
individuals entitled to the control of those entities specified by
Section 443.003, request or consent to rehabilitation or
liquidation under this chapter;
(21) the insurer does not comply with its domiciliary
state's requirements for issuance to it of a certificate of
authority, or its certificate of authority has been revoked by its
state of domicile; [or]
(22) when authorized by department rules; or
(23) a court has made a determination described by
Section 202(a)(1)(A)(iv)(I), Pub. L. No. 111-203.
SECTION 5. Section 443.058, Insurance Code, is amended to
read as follows:
Sec. 443.058. ENTRY OF ORDER. If [the commissioner
establishes] any of the grounds provided in Section 443.057 are
established, the receivership court shall grant the petition and
issue the order of rehabilitation or liquidation requested in the
petition.
SECTION 6. Section 443.102, Insurance Code, is amended by
adding Subsection (f) to read as follows:
(f) The rehabilitator may exercise all powers:
(1) possessed on August 31, 2005, by a receiver
appointed for the purpose of rehabilitating an insurer; or
(2) conferred on a rehabilitator after that date by
the laws of this state that are not inconsistent with this chapter.
SECTION 7. Subsection (i), Section 443.154, Insurance Code,
is amended to read as follows:
(i) The liquidator may, subject to Subsection (y) [(x)],
acquire, hypothecate, encumber, lease, improve, sell, transfer,
abandon, or otherwise dispose of or deal with any property of the
estate at its market value or upon terms and conditions that are
fair and reasonable. The liquidator also has the power to execute,
acknowledge, and deliver any and all deeds, assignments, releases,
and other instruments necessary or proper to effectuate any sale of
property or other transaction in connection with the liquidation.
SECTION 8. Subsection (b), Section 443.211, Insurance Code,
is amended to read as follows:
(b) Except as provided by Subsection (a), any reinsurance
shall be payable to the receiver under a policy reinsured by the
assuming insurer on the basis of claims:
(1) allowed under Section 443.253; or [and]
(2) paid under:
(A) Chapter 462, 463, or 2602; or
(B) the guaranty associations of other states.
SECTION 9. Subsection (e), Section 443.253, Insurance Code,
is amended to read as follows:
(e) A judgment or order against an insured or the insurer
entered after the date of the initial filing of a successful
petition for receivership, or within 120 days before the initial
filing of the petition, or [and] a judgment or order against an
insured or the insurer entered at any time by default or by
collusion need not be considered as evidence of liability or of the
amount of damages.
SECTION 10. Section 443.301, Insurance Code, is amended to
read as follows:
Sec. 443.301. PRIORITY OF DISTRIBUTION. The priority of
payment of distributions on unsecured claims must be in accordance
with the order in which each class of claims is set forth in this
section. Every claim in each class shall be paid in full, or
adequate funds retained for their payment, before the members of
the next class receive payment, and all claims within a class must
be paid substantially the same percentage of the amount of the
claim. Except as provided by Subsections (a)(2), (a)(3), (i), and
(k), subclasses may not be established within a class. No claim by
a shareholder, policyholder, or other creditor shall be permitted
to circumvent the priority classes through the use of equitable
remedies. The order of distribution of claims shall be:
(a) Class 1. (1) The costs and expenses of administration
expressly approved or ratified by the liquidator, including the
following:
(A) the actual and necessary costs of preserving
or recovering the property of the insurer;
(B) reasonable compensation for all services
rendered on behalf of the administrative supervisor or receiver;
(C) any necessary filing fees;
(D) the fees and mileage payable to witnesses;
(E) unsecured loans obtained by the receiver; and
(F) expenses, if any, approved by the
rehabilitator of the insurer and incurred in the course of the
rehabilitation that are unpaid at the time of the entry of the order
of liquidation.
(2) The reasonable expenses of a guaranty association,
including overhead, salaries and other general administrative
expenses allocable to the receivership to include administrative
and claims handling expenses and expenses in connection with
arrangements for ongoing coverage, other than expenses incurred in
the performance of duties under Section 462.002(3), 463.108,
463.111, 463.113, 463.353, or 2602.113 or similar duties under the
statute governing a similar organization in another state. In the
case of the Texas Property and Casualty Insurance Guaranty
Association and other property and casualty guaranty associations,
the expenses shall include loss adjustment expenses, including
adjusting and other expenses and defense and cost containment
expenses. In the event that there are insufficient assets to pay
all of the costs and expenses of administration under Subsection
(a)(1) and the expenses of a guaranty association, the costs and
expenses under Subsection (a)(1) shall have priority over the
expenses of a guaranty association. In this event, the expenses of
a guaranty association shall be paid on a pro rata basis after the
payment of costs and expenses under Subsection (a)(1) in full.
(3) For purposes of Subsection (a)(1)(E), any
unsecured loan obtained by the receiver, unless by its terms it
otherwise provides, has priority over all other costs of
administration. Absent agreement to the contrary, all claims in
this subclass share pro rata.
(4) Except as expressly approved by the receiver, any
expenses arising from a duty to indemnify the directors, officers,
or employees of the insurer are excluded from this class and, if
allowed, are Class 5 claims.
(b) Class 2. (1) All claims under policies of insurance,
including third-party claims, claims under nonassessable policies
for unearned premium, claims of obligees and, subject to the
discretion of the receiver, completion contractors under surety
bonds and surety undertakings other than bail bonds, mortgage or
financial guaranties, or other forms of insurance offering
protection against investment risk, claims by principals under
surety bonds and surety undertakings for wrongful dissipation of
collateral by the insurer or its agents, and claims incurred during
the extension of coverage provided for in Section 443.152.
(2) All other claims incurred in fulfilling the
statutory obligations of a guaranty association not included in
Class 1, including indemnity payments on covered claims and, in the
case of the Life, Accident, Health, and Hospital Service Insurance
Guaranty Association or another life and health guaranty
association, all claims as a creditor of the impaired or insolvent
insurer for all payments of and liabilities incurred on behalf of
covered claims or covered obligations of the insurer and for the
funds needed to reinsure those obligations with a solvent insurer.
(3) Claims for benefits under a health care plan
issued by a health maintenance organization.
(4) Claims under insurance policies or contracts for
benefits issued by an unauthorized insurer.
(5) Notwithstanding any provision of this chapter, the
following claims are excluded from Class 2 priority:
(A) [(1)] obligations of the insolvent insurer
arising out of reinsurance contracts;
(B) [(2)] obligations, excluding unearned
premium claims on policies other than reinsurance agreements,
incurred after:
(i) [(A)] the expiration date of the
insurance policy;
(ii) [(B)] the policy has been replaced by
the insured or canceled at the insured's request; or
(iii) [(C)] the policy has been canceled as
provided by this chapter;
(C) [(3)] obligations to insurers, insurance
pools, or underwriting associations and their claims for
contribution, indemnity, or subrogation, equitable or otherwise;
(D) [(4)] any claim that is in excess of any
applicable limits provided in the insurance policy issued by the
insurer;
(E) [(5)] any amount accrued as punitive or
exemplary damages unless expressly covered under the terms of the
policy;
(F) [(6)] tort claims of any kind against the
insurer and claims against the insurer for bad faith or wrongful
settlement practices; and
(G) [(7)] claims of the guaranty associations
for assessments not paid by the insurer, which must be paid as
claims in Class 5.
(c) Class 3. Claims of the federal government not included
in Class 2 [3].
(d) Class 4. Debts due employees for services or benefits
to the extent that the debts do not exceed $5,000 or two months
salary, whichever is the lesser, and represent payment for services
performed within one year before the entry of the initial order of
receivership. This priority is in lieu of any other similar
priority that may be authorized by law as to wages or compensation
of employees.
(e) Class 5. Claims of other unsecured creditors not
included in Classes 1 through 4, including claims under reinsurance
contracts, claims of guaranty associations for assessments not paid
by the insurer, and other claims excluded from Class 2.
(f) Class 6. Claims of any state or local governments,
except those specifically classified elsewhere in this section.
Claims of attorneys for fees and expenses owed them by an insurer
for services rendered in opposing a formal delinquency proceeding.
In order to prove the claim, the claimant must show that the insurer
that is the subject of the delinquency proceeding incurred the fees
and expenses based on its best knowledge, information, and belief,
formed after reasonable inquiry, indicating opposition was in the
best interests of the insurer, was well grounded in fact, and was
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law, and that
opposition was not pursued for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the
cost of the litigation.
(g) Class 7. Claims of any state or local government for a
penalty or forfeiture, but only to the extent of the pecuniary loss
sustained from the act, transaction, or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual costs
occasioned thereby. The balance of the claims must be treated as
Class 9 claims under Subsection (i).
(h) Class 8. Except as provided in Sections 443.251(b) and
(d), late filed claims that would otherwise be classified in
Classes 2 through 7.
(i) Class 9. Surplus notes, capital notes or contribution
notes or similar obligations, premium refunds on assessable
policies, and any other claims specifically assigned to this class.
Claims in this class are subject to any subordination agreements
related to other claims in this class that existed before the entry
of the liquidation order.
(j) Class 10. Interest on allowed claims of Classes 1
through 9, according to the terms of a plan proposed by the
liquidator and approved by the receivership court.
(k) Class 11. Claims of shareholders or other owners
arising out of their capacity as shareholders or other owners, or
any other capacity, except as they may be qualified in Class 2, 5,
or 10. Claims in this class are subject to any subordination
agreements related to other claims in this class that existed
before the entry of the liquidation order.
SECTION 11. Subsections (a) and (b), Section 443.303,
Insurance Code, are amended to read as follows:
(a) For purposes of this section, "distributable assets"
means all general assets of the liquidation estate less:
(1) amounts reserved, to the extent necessary and
appropriate, for the entire Section 443.301(a) expenses of the
liquidation through and after its closure; and
(2) to the extent necessary and appropriate, reserves
for distributions on claims other than those of the guaranty
associations falling within the priority classes of claims
established in Section 443.301(b) [443.301(c)].
(b) Early access payments to guaranty associations must be
made as soon as possible after the entry of a liquidation order and
as frequently as possible after the entry of the order, but at least
annually if distributable assets are available to be distributed to
the guaranty associations, and must be in amounts consistent with
this section. Amounts advanced to an affected guaranty association
pursuant to this section shall be accounted for as advances against
distributions to be made under Section 443.302. Where sufficient
distributable assets are available, amounts advanced are not
limited to the claims and expenses paid to date by the guaranty
associations; however, the liquidator may not distribute
distributable assets to the guaranty associations in excess of the
anticipated entire claims of the guaranty associations falling
within the priority classes of claims established in Sections
443.301(a) and (b) [443.301(b) and (c)].
SECTION 12. The changes in law made by this Act apply to a
receivership proceeding pending on the effective date of this Act
or initiated on or after the effective date of this Act.
SECTION 13. This Act takes effect September 1, 2011.