82R25268 RWG-F
By: Hegar S.B. No. 1932
A BILL TO BE ENTITLED
AN ACT
relating to the appointment of a master in chancery to oversee, and
payment of certain expenses in, an insurance receivership.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. 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) in accordance with Section
443.015, 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. 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. 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. Notwithstanding any
provision of this chapter, the following claims are excluded from
Class 2 priority:
(1) obligations of the insolvent insurer arising out
of reinsurance contracts;
(2) obligations, excluding unearned premium claims on
policies other than reinsurance agreements, incurred after:
(A) the expiration date of the insurance policy;
(B) the policy has been replaced by the insured
or canceled at the insured's request; or
(C) the policy has been canceled as provided by
this chapter;
(3) obligations to insurers, insurance pools, or
underwriting associations and their claims for contribution,
indemnity, or subrogation, equitable or otherwise;
(4) any claim that is in excess of any applicable
limits provided in the insurance policy issued by the insurer;
(5) any amount accrued as punitive or exemplary
damages unless expressly covered under the terms of the policy;
(6) tort claims of any kind against the insurer and
claims against the insurer for bad faith or wrongful settlement
practices; and
(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 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 2. Subchapter B, Chapter 443, Insurance Code, is
amended by adding Section 443.060 to read as follows:
Sec. 443.060. APPOINTMENT OF MASTER. (a) For the purposes
of Rule 171, Texas Rules of Civil Procedure, or a successor to that
rule, a delinquency proceeding under this chapter is an exceptional
case for which good cause exists for a receivership court to appoint
one or more masters in chancery to oversee the proceeding. A master:
(1) must:
(A) be a citizen of this state; and
(B) perform all of the duties required of the
master as directed by the receivership court;
(2) may not:
(A) be an attorney for a party to the proceeding;
or
(B) be related to any party to the proceeding;
and
(3) has the same powers as a master in chancery in a
court of equity.
(b) A master may be appointed in a delinquency proceeding:
(1) on a motion of a party to the delinquency
proceeding;
(2) on the receivership court's own motion; or
(3) as provided by local rules or procedures of the
Travis County district courts.
(c) The receivership court may consider any reasonable
criteria in appointing a master to a delinquency proceeding,
including:
(1) the overall complexity of the delinquency
proceeding;
(2) the number of delinquency proceedings on the
master's docket;
(3) the number of related delinquency proceedings to
which the master has been previously appointed;
(4) the anticipated duration of the delinquency
proceeding;
(5) the scope of matters assigned to the master;
(6) whether to appoint the master to hear all matters
arising in a delinquency proceeding, or certain matters or types of
matters, as specified by the receivership court;
(7) the term of the master in relation to the
anticipated duration of the assignment; and
(8) the number of claims existing and reasonably
expected, in addition to anticipated derivative litigation,
against the receivership estate at the commencement of, or during,
the delinquency proceeding, provided that a determination under
this subdivision:
(A) is made without a bias or appearance of bias
toward a specific claim or litigation; and
(B) does not impose an undue or premature burden
on a party that may have a claim or cause of action against a
receivership estate.
(d) Except as provided by this subsection, a master shall
serve a term of not more than 10 years. The receivership court may:
(1) appoint a master to a longer term if the duration
of a delinquency proceeding to which the master has been previously
assigned lasts longer than 10 years; and
(2) hear petitions from parties to a delinquency
proceeding to have another master assigned to that delinquency
proceeding.
(e) If the receivership court appoints one or more masters,
the court must, by local rule, procedure, or order, adopt
procedures for the succession of the master or masters.
(f) Before the expiration of a master's term, the master may
resign by providing written notice to the receivership court, filed
with the Travis County district clerk. If a master resigns under
this subsection, the receivership court shall promptly appoint a
successor master.
(g) Rule 171, Texas Rules of Civil Procedure, or a successor
to that rule, applies to the order of reference to the master.
(h) Except as provided by Subsection (i), a master's fees
and expenses are payable as a cost of administration of the
receivership estate in accordance with this section. A master
shall submit a statement of time and costs, with notice to the
parties in interest. A party in interest may file an objection to a
master's statement not later than 30 days after the date of the
filing of the statement and set the objection for hearing before the
receivership court. A master's fees shall be paid if no objection
is timely filed or if all timely filed objections are overruled.
(i) If a master is appointed to hear a dispute between
particular parties in interest in the delinquency proceeding, the
receivership court may tax the master's fees and expenses to the
parties to the dispute.
SECTION 3. (a) The changes in law made by this Act do not
abrogate the valid appointment of a master under Rule 171, Texas
Rules of Civil Procedure, entered before September 1, 2011, in a
proceeding under Chapter 443, Insurance Code.
(b) Before January 1, 2012, the changes in law made by this
Act do not apply to a proceeding under Chapter 443, Insurance Code,
in which the court appointed a master under Rule 171, Texas Rules of
Civil Procedure, before September 1, 2011.
SECTION 4. This Act takes effect September 1, 2011.